The European Central Bank (ECB) has released its latest Economic Bulletin, which provides an update on the Eurozone’s economic outlook and monetary policy stance. The bulletin notes that Eurozone GDP growth has remained robust in the first quarter of 2023, despite the ongoing monetary policy tightening phase, which has resulted in higher interest rates. However, the ECB anticipates a slowdown in growth in the second quarter of the year due to lower consumer demand and supply-side disruptions.
The bulletin also highlights that inflation pressures have remained elevated, with headline inflation reaching 3.2% in March 2023, mainly driven by higher energy and food prices. The ECB expects inflation to remain above its 2% target for an extended period before gradually moderating towards target. To counteract above-target medium-term inflation pressures, the ECB has continued its monetary policy tightening, with the key interest rate currently standing at 2.25%.
The ECB notes that financing conditions for Eurozone firms have remained favourable, with the cost of debt financing remaining low and the cost of equity declining since the end of 2021. However, stock market valuations have declined disproportionately for sectors sensitive to interest-rate changes, such as technology or cyclical consumer products, and the real estate sector.
The ECB emphasizes that its future policy rate decisions will be determined by an assessment of the inflation outlook, the dynamics of underlying inflation, and the strength of monetary policy transmission. The ECB will closely monitor developments in the financing conditions facing firms, including bank lending and credit supply and demand. The bank lending survey and the Corporate Telephone Survey (CTS) will provide the ECB with feedback from the corporate sector, including in relation to financing conditions. The next Survey on Access to Finance (SAFE) will supply comprehensive information on the financing conditions facing firms in time for the ECB’s June meeting.
Overall, the ECB’s Economic Bulletin suggests that the Eurozone economy remains on a solid growth path, despite the ongoing monetary policy tightening. The ECB is closely monitoring inflation pressures and financing conditions for firms, and will adjust its policy stance accordingly to ensure that inflation returns to its 2% target in a timely manner.
https://www.ecb.europa.eu/press/key/date/2023/html/ecb.sp230419~09fe9b3295.en.html