The European Central Bank confirms the prospect of a "slow recovery" for the Eurozone economy, but reiterates that "unemployment remains high" and "the necessary balance sheet adjustments in the public and private sectors will continue to weigh on the pace of the recovery: the Risks to the economic outlook continue to tilt to the downside.
For these reasons, in its latest monthly bulletin, the ECB reiterates that it will keep interest rates low for a long time to come: “The recent indications fully support the decision of the Governing Council to maintain an accommodative monetary policy stance for as long as necessary; this will support the gradual recovery of the economy in the euro area”. Last week the Eurotower confirmed the cost of borrowing at an all-time low of 0,25%.
INFLATION, CUT ESTIMATES FOR 2014 AND 2015
ECB forecasters cut inflation estimates for the euro area, bringing them to 1,1% for 2014 and 1,4% for 2015, with a downward correction of 0,4 and 0,2 percentage points. This is what emerges from the Survey of professional Forecasters relating to the first quarter of this year, published in the bulletin and drawn up on the basis of the answers of 53 forecasters between 16 and 24 January. Turning to longer-term inflation expectations, the average point forecast remained at 1,9%, despite a slight further decline to two decimal places.
Expectations for real GDP growth in 2014 and 2015 remain stable, at 1% and 1,5% respectively. The expected growth for 2016 is 1,7%, indicating a continuous, albeit gradual, recovery of economic activity in the coming years. Based on the qualitative comments, participants expect a continued but moderate recovery in domestic demand.
INCREASING UNCERTAINTIES ON THE BOND MARKETS
"Uncertainty about future trends in bond markets has increased on both sides of the Atlantic", write the ECB economists, explaining that at the beginning of February the implied volatility stood at around 5,6% in the area of the euro and 6,1% in the United States. The ECB also points out that "in January and in the first few days of February government bond yields decreased in the euro area and in the United States as a result of the publication of conflicting economic data on the world economy, as well as the turbulence in some emerging markets”. Sovereign bond yield spreads in the euro area have “decreased in most countries”.
YOUTH UNEMPLOYMENT ALARM
“The youth unemployment rate has increased particularly sharply in countries subject to market tensions – continues the bulletin –, reaching values between 2013 and 50% in Greece and Spain in 60 and reaching levels close to 40% in Italy, Portugal and Cyprus and 30% in Ireland”. The trend in youth unemployment shows "significant differences between countries: in Austria and Malta the increase was moderate and in Germany there was even a decline".
In general, the latest data on the euro area labor market “show a certain stabilisation”, reiterates the ECB: last December “the unemployment rate was 12%, unchanged compared to the previous two months. This stability, which masks a decline in the number of unemployed, follows the monthly decline of 0,1 percentage points recorded in October, which in turn marked the first reduction in the unemployment rate in over two and a half years.
