The ECB will continue to act like a hawk. This is confirmed by the words contained in the latest bulletin published on Thursday 12 January. In particular, the estimates on theinflation 2023 they rise to 6,3% while growth narrows to +0,5%. Therefore the Central Bank deems it necessary to continue with robust rate increases.
ECB: towards a mini winter recession
In the last three months of 2022 and the first three months of 2023, the Eurozone economy “could undergo a contraction due to the energy crisis, elevated uncertainty, weakening global economic activity and tighter financing conditions” and with downside-oriented risks“, but “a possible recession it would be relatively short and of minor importance.
THEinflation instead it is seen at 6,3% in 2023 compared to the 8,4% estimated for 2022. The core component in particular, excluding energy and food products, worries the ECB which assumes an average of +3,9% in 2022 and +4,2% in 2023, before to fall to 2,8% in 2024 and 2,4% in 2025.
In the landscape, however, there are also lights. In December, the ECB staff predicted economic growth of 2023% in 0,5 after the 3,4% expected as the final figure for 2022 but then signaled a recovery in 2024 and 2025.
"The risks to the economic growth prospects are oriented to the downside especially in the short term", continues the Eurotower, highlighting how the war against Ukraine continues to pose a significant downside risk to the economy. The costs of energy and food goods could also remain persistently higher than expected. “A further brake on growth in the euro area could come from a possible weakening of the world economy that is stronger than expected”. THE risks to the inflation outlook instead they are “predominantly bullish”. In the near term, existing inflationary pressures could lead to stronger-than-expected increases in energy and food retail prices. In the medium term, the risks come mainly from domestic factors, such as a sustained rise in inflation expectations above the ECB's 2% target or higher-than-projected wage increases. Conversely, a drop in energy costs or a further weakening of demand would reduce price pressures.
The bulletin also reports the "positive signals" from the'occupation which rose by 0,3% in the third quarter. In parallel, unemployment fell to a new all-time low of 6,5% in October.
ECB: rates will continue to rise, spreads under control
In the period between September and mid-December 2022, “interest rates in the longer term they have grown, overall, only slightly” and “spreads on government bonds have narrowed”, writes the ECB in its monthly bulletin. The analysis focused above all on the trend of Italy and Greece which today seems to prove the lie of those who feared a surge in spreads between announcements of rate hikes and the dismantling of Qe. “Spreads on Italian government bonds and 18-year Greek bonds – the document points out – have fallen by 22 and XNUMX basis points respectively”.
With regard to the monetary policy, according to the European Central Bank, “interest rates” will have to “yet increase significantly at a steady pace to reach levels restrictive enough to ensure a timely return of inflation to the 2% target over the medium term”. As announced in December, the Eurotower confirms that from March the portfolio of bonds purchased over the years with the 'App' program "will be reduced at a measured and predictable pace" equal, on average, to 15 billion euros per month until the end of second quarter of 2023 and which will then be determined over time.
ECB: "Measures against expensive energy must be temporary and targeted"
Fiscal measures aimed at protecting the economy from the impact of high energy prices should be temporary, targeted and modeled in order to preserve the incentives for lower energy consumption", write the ECB experts in the economic bulletin, underlining how "if the measures do not meet these criteria, they could likely exacerbate inflationary pressures, making a stronger monetary policy response necessary" . Furthermore, in line with the EU economic governance framework, fiscal policies should be geared towards making the euro area economy more productive and to gradually lower the high level of the debt. “Policies aimed at improving the euro area's supply capacity, especially in the energy sector, can help reduce price pressures over the medium term. To this end, governments should timely implement the investment and structural reform plans under the Next Generation Eu programme. The reform of the EU's economic governance framework should be completed quickly".
Inflation expectations
The median expectations for inflation over the next 12 months are decreased from 5,4% to 5%, while expectations for inflation over the next three years have dropped from 3% to 2,9%. This was revealed by the November survey on consumer expectations published today by the ECB which underlines how uncertainty about inflation expectations over the next 12 months it has remained stable since July, although it remains well above the prevailing pre-war level in Ukraine.
For the purchasing powerConsumers in November expected their nominal income to grow 0,9% over the next 12 months, up from 0,7% in October.
