MONTHLY BCE ECONOMIC BULLETIN

The following is the text of the overview of the European Central Bank’s latest Economic Bulletin

(Bloomberg) — The following is the text of the overview of
the European Central Bank’s latest Economic Bulletin:
The incoming information that has become available since
the Governing Council’s monetary policy meeting in September,
while somewhat weaker than expected, remains overall consistent
with an ongoing broad-based expansion of the euro area economy
and gradually rising inflation pressures. The risks surrounding
the euro area growth outlook can still be assessed as broadly
balanced. At the same time, risks relating to protectionism,
vulnerabilities in emerging markets and financial market
volatility remain prominent. Yet, the underlying strength of the
economy continues to support the Governing Council’s confidence
that the sustained convergence of inflation to its aim will
continue in the period ahead and will be maintained even after a
gradual winding-down of the net asset purchases. Nevertheless,
significant monetary policy stimulus is still needed to support
the further build-up of domestic price pressures and headline
inflation developments over the medium term. This support will
continue to be provided by the net asset purchases until the end
of the year, by the sizeable stock of acquired assets and the
associated reinvestments, and by the Governing Council’s
enhanced forward guidance on the key ECB interest rates. In any
event, the Governing Council stands ready to adjust all of its
instruments as appropriate to ensure that inflation continues to
move towards its aim in a sustained manner.
Survey indicators of global economic growth have weakened
recently as the global economic cycle matures. The global trade
momentum has moderated amid ongoing actions and threats
regarding trade tariff increases by the United States and
possible retaliation by affected countries, but the near-term
outlook remains steady. Global financial conditions remain
supportive for advanced economies, while creating headwinds for
emerging market economies.
In the euro area, sovereign bond yields have risen amid an
increase in global risk-free rates and rising tensions in the
sovereign debt markets of some euro area countries. Euro area
equity prices have declined, reflecting a deterioration in risk
sentiment. By contrast, yield spreads on corporate bonds have
remained broadly unchanged. In foreign exchange markets, the
euro has been broadly stable in trade-weighted terms.
Euro area real GDP increased by 0.4%, quarter on quarter,
in both the first and the second quarter of 2018. Looking ahead,
the incoming information remains overall consistent with the
Governing Council’s baseline scenario of an ongoing broad-based
economic expansion. However, some recent sector-specific
developments are having an impact on the near-term growth
profile. The ECB’s monetary policy measures continue to underpin
domestic demand. Private consumption is fostered by ongoing
employment growth and rising wages. Business investment is
supported by solid domestic demand, favourable financing
conditions and corporate profitability. Housing investment
remains robust. In addition, the expansion in global activity is
expected to continue supporting euro area exports, though at a
slower pace.
Euro area annual HICP inflation increased to 2.1% in
September 2018, from 2.0% in August, reflecting mainly higher
energy and food price inflation. On the basis of current futures
prices for oil, annual rates of headline inflation are likely to
hover around the current level over the coming months. While
measures of underlying inflation remain generally muted, they
have been increasing from earlier lows. Domestic cost pressures
are strengthening and broadening amid high levels of capacity
utilisation and tightening labour markets. Looking ahead,
underlying inflation is expected to pick up towards the end of
the year and to increase further over the medium term, supported
by the ECB’s monetary policy measures, the ongoing economic
expansion and rising wage growth.
The monetary analysis shows that broad money (M3) growth
stood at 3.5% in September 2018, after 3.4% in August. The
growth of loans to the private sector has strengthened further,
continuing the upward trend observed since the beginning of
2014. The euro area bank lending survey for the third quarter of
2018 indicates that loan growth continues to be supported by
increasing demand across all loan categories and favourable bank
lending conditions for loans to enterprises and loans for house
purchase.
Combining the outcome of the economic analysis with the
signals coming from the monetary analysis, the Governing Council
concluded that an ample degree of monetary accommodation is
still necessary for the continued sustained convergence of
inflation to levels that are below, but close to, 2% over the
medium term.
On the basis of this assessment, the Governing Council
decided to keep the key ECB interest rates unchanged and
continues to expect them to remain at their present levels at
least through the summer of 2019, and in any case for as long as
necessary to ensure the continued sustained convergence of
inflation to levels that are below, but close to, 2% over the
medium term. Regarding non-standard monetary policy measures,
the Governing Council confirmed that the Eurosystem will
continue to make net purchases under the asset purchase
programme (APP) at the new monthly pace of €15 billion until the
end of December 2018. The Governing Council anticipates that,
subject to incoming data confirming its medium-term inflation
outlook, net purchases will then end. The Governing Council
intends to reinvest the principal payments from maturing
securities purchased under the APP for an extended period of
time after the end of the net asset purchases, and in any case
for as long as necessary to maintain favourable liquidity
conditions and an ample degree of monetary accommodation.
SOURCE: European Central Bank ECB <GO>