Inflation is still too high and, moreover, there are uncertainties regarding the transmission of rate hikes to the real economy. Translated: the growing season continues. “Future decisions by the Governing Council will ensure that key interest rates are set at levels restrictive enough to achieve a timely return of inflation to2% target in the medium term and are maintained at these levels for as long as necessary”. The ECB writes it in the usual way Monthly Economic Bulletin.
ECB: inflation falls, but prospects remain high”
According to Frankfurt, “the inflation outlook continues to be too high for too long” and therefore “the Governing Council will continue to follow a data-dependent approach to determine an appropriate level and duration of the restriction”. In particular, “decisions on key rates will continue to be based on the Governing Council's assessment of the inflation outlook in the light of the most recent economic and financial data, underlying inflation dynamics and the intensity of the monetary policy transmission ”.
"Overall inflation recorded a reduction in recent months - notes the ECB -, although the underlying pressure on prices remains intense", observes the European Central Bank, according to which "there are still significant upside risks for inflation prospects, including the current accumulated inflationary pressures, likely to raise retail prices more than expected in the short term”.
ECB: loans to households and businesses at the lowest level in the last 20 years
The ECB Bulletin reports that banks recorded a sharp decline in the demand for loans from businesses and households in the first quarter of 2023 and that it could further decline in the second quarter. “The drop in loan demand from businesses – reads the bulletin – was the sharpest since the global financial crisis, while the contraction in loan demand from households was the sharpest since the start of the survey in 2003”. Banks reported that the general level of interest rates was the main factor behind the reduced demand for loans but that “the decline in financing needs for fixed investment also had a strong dampening effect on the demand for loans by banks businesses".
ECB: "Rises not yet transmitted to the real economy"
“Past interest rate hikes are being forcefully transmitted to monetary and financing conditions in the euro area, while the delay and intensity of transmission to the real economy remain uncertain". It reads in the economic bulletin of the ECB.
ECB: GDP up again in the second quarter
“The data that has been made available so far indicate for the second quarter of 2023 la continuation of positive growth, even if moderate”, reports the Eurotower which then explains: “The Governing Council observes diverging trends between the economic sectors. The manufacturing sector is clearing its order backlog, but the outlook points to worsening. The service sector it is experiencing stronger growth, especially as a result of the reopening of economic activities”.
According to the ECB, “the flare-up of tensions in the financial markets, if it were to persist, it would pose downside risks to growth prospects, as it could lead to a stronger-than-expected tightening of credit conditions more broadly, affecting the climate of confidence”. Also there russian war against Ukraine”, moreover, “continues to represent a significant downside risk for the economy”.
“However – warns the Eurotower – the recent reabsorption of past shocks Supply-side adverse effects, if continued, could boost confidence and support higher growth than current expectations. “Even the enduring maintenance of the labor market, to the extent that it supports the climate of confidence and household spending – concludes the Bulletin – could lead to higher growth than expected”.
