Wednesday September 17, 2014 Search
Weather | Athens
27o C
20o C
News
Business
Comment
Life
Sports
Community
Survival Guide
Greek Edition
Euro inflation seen testing ECB patience as stimulus takes time

By Stefan Riecher & Giovanni Salzano

When the European Central Bank unleashed a stimulus barrage in June, it cautioned that the economy would take some time to respond. Data due this week may test its patience.

The inflation rate remained at 0.5 percent for a third month in July, according to the median forecast of 42 economists in a Bloomberg survey. The unemployment rate remain unchanged at 11.6 percent in June, a separate survey shows. That may fuel policy makers’ concern that annual price gains will become entrenched at a fraction of the ECB’s goal of just under 2 percent, and increase calls for further action.

The ECB unveiled a range of measures including a negative deposit rate and targeted long-term loans last month. While the package has helped push the average yield on bonds from Europe’s most-indebted nations to a record low and bolstered manufacturing and services in a vote of confidence, it has yet to show its impact on prices, growth and lending, as geopolitical tensions threaten to undermine the recovery.

“Speculation about an asset-purchase program from the ECB is likely to gain further traction,” said Benjamin Schroeder, an interest-rates strategist at Commerzbank AG in Frankfurt. “The crises in Ukraine and the Middle East should remain a driving factor” for the euro-area economy, he said.

The European Union’s statistics office is due to release inflation and jobless data on July 31 at 11 a.m. in Luxembourg. These releases will be preceded on July 30 by reports on euro- area business confidence at 11 a.m. and German inflation at 2 p.m.

Economic Destiny

The destiny of the euro area hinges on Europe’s largest economy, which saw gross domestic product growing 0.8 percent in the first quarter, four times the currency bloc’s rate.

The Bundesbank has warned that political uncertainty in some of the country’s export markets may weigh on business and said that the economy may have stagnated in the second quarter. Sentiment as measured by the Ifo research institute dropped more than economists predicted in July to the lowest level in nine months.

Even so, gauges of German manufacturing and services output signal a rebound in activity to levels seen at the beginning of the year, Markit Economics said last week. Similar measures for the euro area also strengthened this month in a sign of confidence that ECB stimulus will eventually support the recovery.

Geopolitical Tensions

“It is encouraging to see that the recovery in survey indicators remains reasonably resilient to rising geopolitical tensions and weak growth in global trade,” said Marco Valli, chief euro-area economist at UniCredit Bank AG in Milan, who sees “hard data gradually rising towards the more upbeat survey numbers.”

The ECB predicts the euro-area economy will grow 1 percent this year, 1.7 percent next year and 1.8 percent in 2016. It expects inflation to rise gradually over the next two years to 1.4 percent in 2016.

“The combination of monetary policy measures decided last month has already led to a further easing of the monetary policy stance,” Draghi said on July 3.

The rate banks charge each other for overnight lending has averaged at 0.04 percent so far this month, compared with 0.26 percent in May, before the package was announced. Fresh stimulus has also fueled a rally in bonds that cut Spanish 10-year borrowing costs to a record 2.524 percent last week and helped Italian debt of the same maturity drop for the most consecutive days since 2005.

Bank Lending

Lending to companies and households, which the ECB has identified as key impediment to the region’s recovery, hasn’t yet improved. Loans shrank 1.7 percent in June from a year earlier, recording the 26th consecutive contraction. The ECB’s Bank Lending Survey, to be published on July 30, will show whether supply or demand is to be blamed.

Policy makers have placed their hopes on a targeted lending program offering banks low-cost funds for as long as four years that could, according to Draghi, inject as much as 1 trillion euros ($1.34 trillion) into the financial system.

“Let’s focus on getting these existing, newly announced measures going” before introducing additional policy action, ECB Governing Council member Ardo Hansson said in an interview on July 16. “It’s worth preparing, it’s worth having more tools, but I don’t think quantitative easing is a tool that’s needed right now.”

[Bloomberg]

ekathimerini.com , Monday Jul 28, 2014 (10:00)  
Aegean’s Vassilakis says Cyprus air sale could mean lower fees
Production of the new Pony to start by the end of the year, NAMCO says
Eurozone August inflation revised up to 0.4 pct
Sports events extend season of tourism
Prosecutor orders probe into Lagarde, Tsipras ´death threats´
A Supreme Court prosecutor has ordered a probe into claims by International Monetary Fund (IMF) Managing Director Christine Lagarde and SYRIZA leader Alexis Tsipras that they received death ...
Tsipras to meet with Pope Francis on Thursday
SYRIZA leader Alexis Tsipras will travel to the Vatican for a meeting with Pope Francis on Thursday according to reports. Social justice, unemployment, immigration and the Mideast crisis are...
Inside News
SOCCER
Mitroglou rediscovers scoring touch after Fulham let-down
Costas Mitroglou banished the memories of his disappointing spell in England after breaking a 10-month goal drought as Olympiakos Piraeus secured a thrilling 3-2 Champions League win over At...
SOCCER
Mitroglou seals Olympiakos´s 3-2 triumph over Atletico
Costas Mitroglou returned to scoring after 10 long months to seal a famous victory for Olympiakos in the Champions League as the Greek champion defeated visiting Atletico Madrid 3-2 on Tuesd...
Inside Sports
COMMENTARY
Loud patriotism
I admit that whenever politicians drag religious faith and worn-out patriotism into discussions I button up. I feel the same way when I see bishops blatantly getting involved in politics. To...
EDITORIAL
In need of a second wind
Greek Prime Minister Antonis Samaras and a few of his ministers have gone to great lengths to see Greece regain credibility in the eyes of its partners. Given that the state mechanism is not...
Inside Comment
SPONSORED LINK: FinanzNachrichten.de
SPONSORED LINK: BestPrice.gr
 RECENT NEWS
1. Aegean’s Vassilakis says Cyprus air sale could mean lower fees
2. Prosecutor orders probe into Lagarde, Tsipras ´death threats´
3. Production of the new Pony to start by the end of the year, NAMCO says
4. Eurozone August inflation revised up to 0.4 pct
5. Tsipras to meet with Pope Francis on Thursday
6. Mitroglou rediscovers scoring touch after Fulham let-down
more news
Today
This Week
1. Loud patriotism
2. In need of a second wind
3. Davutoglu calls for a two-state solution in Cyprus
4. A SYRIZA victory would spark a bank run, PM reportedly warns
5. Tsipras to meet with Pope Francis on Thursday
6. Eurozone August inflation revised up to 0.4 pct
Today
This Week
1. Greece on standby
2. A Greek God
3. Avramopoulos appointed Commissioner for Migration and Home Affairs
4. Central Athens traffic restrictions back in force on Monday
5. Greece at bottom of social justice scale among EU28
6. EU bank tests may miss trillion dollar risk, study finds
   Find us ...
  ... on
Twitter
     ... on Facebook   
About us  |  Subscriptions  |  Advertising  |  Contact us  |  Athens Plus  |  RSS  |   
Copyright © 2014, H KAΘHMEPINH All Rights Reserved.