Economic growth in slow recovery in the first quarter of 2024. Interest rates restrictive as long as necessary. Inflation towards one gradual attenuation during the year. Last but not least, a warning: in the eurozone there are few targeted measures against the expensive bills. This is what the monthly economic bulletin of the company photographs European Central Bank chaired by Christine Lagarde.
“Restrictive as long as necessary” rates
“Future decisions” of Governing Council of the ECB “they will ensure that rates of reference are set at levels sufficiently restrictive as long as necessary." The Frankfurt institute reiterates this in its bulletin where, we read, it believes that the reference interest rates "are placed at levels which, maintained for a sufficiently long period, will provide a substantial contribution to the achievement of this objective".
Inflation towards gradual easing, the scenarios
“Inflation – claims the ECB – should ease further during 2024, in a context in which previous energy shocks, supply-side bottlenecks and the reopening of economic activities after the pandemic are exhausting their effects and the more restrictive monetary policy continues to weigh on demand."
“Upside risks to inflation include increased geopolitical tensions, Mostly in Middle East, which could lead to an increase in prices energy and transportation costs in the short term, hindering the world trade. Furthermore, inflation could be at higher levels than expected if wages rise more than expected or profit margins show greater stability. Conversely, inflation could surprise on the downside if monetary policy curbs demand more than expected or in the event of an unexpected deterioration in the economic environment in the rest of the world. Inflation could also decline more rapidly in the short term if energy prices evolve in line with the recent downward shift in market expectations about the future profile of oil and gas prices.”
The Governing Council of the ECB, therefore, "is ready to adapt all the tools at its disposal within its mandate to ensure that inflation returns to its medium-term objective and to preserve the orderly transmission of monetary policy". The ECB also adds that “it is determined to ensure the timely return of inflation to the 2 percent target in the medium term".
GDP, wars in the Middle East and Ukraine weigh heavily
“The risks for economic growth remain oriented downwards”, continues the ECB addressing the issue of GDP. “Economic expansion could be slower if the effects of monetary policy prove stronger than expected. A weakening of the world economy or a further slowdown in international trade would also weigh on euro area growth. Russia's unjustified war against Ukraine and the tragic conflict in the Middle East are significant sources of geopolitical risk,” she notes. “This could lead to a loss of confidence in the future among businesses and families and disruptions in international trade. Growth could be higher if rising real incomes lead to larger-than-expected increases in spending or if the expansion of the world economy is stronger than expected,” she adds.
Dear energy, the warning
“Governments should continue to withdraw support measures related to energy crisis to avoid pushing up inflationary pressures in the medium term." This is what the ECB continues in its monthly bulletin. “Structural and fiscal policies should be formulated with the aim of increasing the productivity and competitiveness of the euro area economy and gradually downsize the high ratios between public debt and GDP. Structural reforms - he adds - and investments aimed at improving the area's supply capacity, which would benefit from the full implementation of the Next Generation Eu program, can help reduce price pressures in the medium term, while supporting the ecological and digital transitions."
Furthermore “following the recent agreement reached by the Ecofin Council on the reform of the framework EU economic governance, the related legislative process should be concluded quickly, so as to be able to promptly implement the new rules. It is also essential to accelerate progress towards the realization of the capital markets union and the completion of the banking union,” underlines Eurotower.
Vulnerable companies, more in Italy and Germany
The financially vulnerable businesses in the euro area and, among the four big countries, Italy and the Germany record the highest share of vulnerable companies (9%): this is what emerges from an ECB survey which underlines how in both countries there has been "recently observed a notable increase in this share, which reflects the relatively high increase in industrial companies". In the second and third quarters of 2023, the Eurozone bankruptcy filings index exceeded pre-pandemic levels, reaching the highest level since 2015, when the EU indicator was first made available.
