Augustine Leal Alves, Department of Economic and Financial Studies BPI
As expected, the ECB did not change its key interest rates at the last meeting of the year, including the refi rate, although the market was aware of the possible future introduction of monetary policy measures no additional conventional.
According to Mario Draghi, the monetary authority will review early next year the impact of the stimulus already put in place and take further action, if needed.
In fact, the ECB President made clear the possibility appearance of an extended buying assets at the beginning of 2015, including sovereign debt. However, the ECB has revised sharply downwards growth projections and inflation for 2015.
The ECB’s team cut the GDP growth forecast Eurozone to 0.8% this year, 1.0% in 2015 and 1.5% in 2016, when last September the predicted values were 0.9%, 1.6% and 1.9%, respectively. As for inflation, the ECB projected 0.5% in 2014, 0.7% in 2015 and 1.3% in 2016, compared with 0.6%, 1.1% and 1.4% previously advanced.
By reducing their forecasts, the ECB has raised expectations that adopt more measures to stimulate economic activity in the currency bloc. For more Mario Draghi at the press conference, it was determined to defend new actions to counter the European economic stagnation and possible deflation.
In this context, Mario Draghi expressed concern with the price fall oil (35% since September). According to the President of the ECB, this movement will have a mixed impact on the eurozone. On the one hand, drives the economy through cost reduction, but on the other, dragging down inflation, which is already minimal.
However, the most recent data on economic activity in the euro area continue to show a progressive decline. In fact, the end result of the composite PMI for the euro area stood at 51.1 points in November, below the initial estimate (51.4 points). This indicates that the pace of growth in the euro area was the lowest of the past 16 months, reflecting the slowdown in new orders, as well as new business.
France has the worst result (47.9 points) , followed by Italy (51.2 points) and Germany (51.7 points). Spain, in all the four major eurozone economies, was the country that had the greatest rate of expansion (53.8 points).
The situation worsens if the analysis focus only on industrial activity. The PMI indicator of manufacturing for the Euro Zone 50.1 points in November, slightly above the mark of 50.0 points (the level that separates expansion situation of the contraction of activity) and below what had been the previous month (50.6 points).
Five of the eight countries for which calculated the indicator recorded values indicating contraction in economic activity in November, with Austria, France and Italy occupied the last places in the ranking, with 47.4, 48.4 and 49.0 points, respectively. Already Germany has 49.5 points, below the first estimate (50.0 points), which indicates a deterioration in the German economy. On the other hand, Ireland, Spain and the Netherlands were the three countries where the PMI manufacturing recorded values above 50.0 points, respectively, 56.2, 54.7 and 54.6 points.
Indeed, it was also confirmed that the Eurozone GDP grew 0.2% in chain, in 3ºT14, after + 0.1% in the 2ºT14 and + 0.3% in the 1ºT14. Are manifestly insufficient and values that do not support a growth consolidation. Household consumption increased by 0.5%, while exports and imports grew by 0.8% and 1.2%, respectively. Germany escaped the downturn, growing 0.1%; France overcame the stagnation of Q2, up 0.3%; in turn, Italy entered into technical recession while falling 0.1%. To the same period, the expansion in the Eurozone was 0.8%
Also the Bank of England kept unchanged interest rates, with the repo to remain at 0.5%. Apparently, there is now consensus within the Board of Governors not to raise interest rates after the inflation rate falling to 1.3%, well below the target of the monetary authority of 2.0%. Also GDP growth for 2015 was revised downwards from 3.0% to 2.4%.
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