Following the last monetary policy meeting on 25 January, there had been an increasing number of statements suggesting growing discomfort with the status quo advocated by Mario Draghi and his chief economist Peter Praet. Looking at the various comments, and particularly the optimistic tone of Benoît Cœuré, it seemed that the ECB would soon adjust its policy to provide less support to the economy. Since its asset purchase programme was scheduled to last until late September, many expected that, this spring, the ECB would state its intention to end the programme, and some even thought that it would mention a possible timetable for raising official interest rates in 2019. It therefore seemed that rates would rise, the yield curve would steepen, banks would enjoy better conditions and the euro would continue rising. However, the resulting euphoria did not last long. With a few days to go until the 8 March monetary policy meeting, the prospect of the ECB changing direction seems increasingly remote.
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Eurozone Growth Monitor: Too Little Power from the German Powerhouse
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The euro area economy has continued to gain traction. Sentiment has picked up in an increasing number of sectors, even suggesting that the employment and investment outlook in most member countries may gradually get brighter. According to the European Commission’s latest Business Climate Indicator, annual GDP growth for the currency union should move back into positive territory by year-end. So all in all, things look fairly good.
But there’s a missing ingredient: better export performance. Not only are sales to the rest of the world marking time, but trade within the currency bloc has contracted further—an unusual occurrence in a recovery phase. The main explanation for this lies with persistently stagnant demand in Germany— a major obstacle to any real improvement for the regional economy as a whole.