The prolonged uncertainty about the fate of Greece is holding back the European economic recovery and weighs on the Italian spread by 40 basis points. The ECB writes it in its latest monthly bulletin, specifying that "the ten-year yield spread" also grew by 40 bp "in Spain and by around 60 bp in Portugal". However, continues the Eurotower, “in a longer-term perspective, a significant and relatively constant convergence between sovereign yields has been observed within the euro area (except Greece) starting from the high levels observed in the July 2012”.
EUROZONE GDP +1,5% IN 2015, +1,9% IN 2016, +2% IN 2017
As for GDP, “according to projections, the economic recovery in the area should consolidate gradually over the next three years, with positive contributions to growth from both domestic and foreign demand – continues the bulletin -. Annual real GDP in the area is expected to increase by 1,5% in 2015, 1,9% in 2016 and 2,0% in 2017”.
INFLATION: THOROUGH BEHIND, BUT QE WILL CONTINUE AS EXPECTED
On the inflation side, the ECB writes that the euro area should have passed its low point at the beginning of the year, and now, with the downward effects deriving from previous drops in oil having disappeared, the cost of living should "increase over the next year and record a further increase in 2016 and 2017”. In any case, the Eurotower reiterates that the Governing Council intends to continue its quantitative easing program, based on purchases of public and private bonds, "until the end of September 2016, and in any case until there is a lasting adjustment of the profile of inflation consistent with the target”, i.e. a share below but close to 2% in the medium term.
WORK: THE MARKET CONTINUES TO IMPROVE (GRADELY)
“The situation of the labor market in the euro area continues to improve gradually. The number of employed people grew moderately, by 0,1% in quarterly terms in the fourth quarter of 2014 (the latest period for which data are available). At the sectoral level, employment growth was driven by the services sector (especially professional and non-market services). Meanwhile, employment in the financial services and insurance businesses continued to decline, for the eleventh consecutive quarter.
Employment in industry excluding construction, on the other hand, showed "moderate" growth, while the number of people employed in construction fell considerably after a temporary increase in the third quarter: "The results of the surveys - concludes the bulletin - suggest a continuous improvement in employment in the first half of 2015. The forward indicators also point to further improvements in the conditions of the labor market”.
THE EUROZONE'S ECONOMIC RECOVERY SHOULD GET WIDER
In general terms, according to the ECB, the economic recovery of the Eurozone "should expand further". The central institute expects positive contributions from consumption but also from a "more significant boost" from business investments. Monetary indicators further improved and credit dynamics continued to strengthen, notes the ECB: "Monetary policy measures are helping to restore the correct functioning of the transmission mechanism and to ease bank lending conditions".
Furthermore, according to the institution, the improvement of conditions in the credit market "also concerns small and medium-sized enterprises and not only the large ones". In addition, “several factors support the gradual recovery of economic activity and the labor market in the euro area. The data indicate that the economic recovery has broadened, a trend that can be traced back to various factors”: the monetary policy measures; the drop in oil prices and the declines in the euro.
“The expected strengthening of the global economic recovery should also have a positive effect on the dynamics of exports. At the same time, it is probable that the necessary budgetary adjustments in various sectors and the slowness of the implementation of structural reforms could slow down the recovery of economic activity".
PENSIONS: RISKS OF REVERSAL REFORMS
Lastly, the European Central Bank warns of the "risk of reversing pension reforms, as the recent discussions in some countries suggest". This while "Europe has to face a demographic challenge". The old-age dependency ratio, framed as the ratio of people aged 65 and over to those of working age, is expected to nearly double from 29 per cent today to over 50 per cent in 2060. the appropriate structural reforms will be undertaken, demographic aging will have negative implications for the sustainability of public finances”.
In an analysis published in the bulletin, the ECB mentions Italy among the countries where the costs of aging are among the highest, but at the same time they are expected to decrease.
Pension expenditure, which is the main component of the total costs of demographic ageing, should remain on average unchanged with respect to GDP over the forecast horizon. "In fact, it is expected that in 2060 pension expenditure in the euro area will return to the level of 2013, ie 12,3 per cent of GDP".
