Wednesday October 1, 2014 Search
Weather | Athens
26o C
17o 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)  
NBG Pangaea eyes listing on foreign bourse, huge portfolio
Out-of-control unpaid bills bring PPC to its knees
Banks feel optimistic ahead of stress test results
S&P upgrades OTE’s credit rating and revises outlook
Would-be commissioner Avramopoulos sets out priorities on migration
Dimitris Avramopoulos, the EU commissioner-designate for migration and home affairs, on Tuesday sought to set out his priorities for a post regarded as more crucial than ever amid increasing...
Money ring sent 4.5 mln abroad
Two Afghan employees at a currency exchange bureau in central Athens and a Greek alleged to own the establishment were detained on Tuesday in connection to the alleged illegal transfer of mo...
Inside News
SOCCER
All team sports suspended next weekend in memory of dead fan
The government announced on Monday the suspension of all team sports events in Greece scheduled for next weekend, October 4 and 5, in the memory of the Ethnikos Piraeus fan who died a few ho...
SOCCER
Karamanos punishes Michel for deeming him surplus
Atromitos forced Olympiakos’s first loss this season in all competitions on Saturday to allow PAOK to go alone on top of the Super League table on Sunday. Odds-on title favorite Olympiakos l...
Inside Sports
COMMENTARY
Next-day jitters
It is usual for Greek governments, whether one-party or coalitions (which are normally loath to actually work together), to claim that their only real challenge is dealing with the country’s...
EDITORIAL
No sweet debt deals
The lion’s share of Greece’s debt is held by European Union member states and the International Monetary Fund. A writedown of the European part of the debt would require the approval of the ...
Inside Comment
SPONSORED LINK: FinanzNachrichten.de
SPONSORED LINK: BestPrice.gr
 RECENT NEWS
1. NBG Pangaea eyes listing on foreign bourse, huge portfolio
2. Out-of-control unpaid bills bring PPC to its knees
3. Banks feel optimistic ahead of stress test results
4. S&P upgrades OTE’s credit rating and revises outlook
5. Athens tourism fuels hotel occupancy
6. Would-be commissioner Avramopoulos sets out priorities on migration
more news
Today
This Week
1. Next-day jitters
2. Roma camp off Mesogeion Avenue set for demolition amid reactions
3. No sweet debt deals
4. Greek unemployment dips to 27 pct in June, but still highest in EU
5. Commissioner-designate Avramopoulos to face three-hour interview on EU's migration portfolio
6. Roma camp evacuation postponed; flow resumes on Mesogeion Avenue
Today
This Week
1. Greece may opt for unusual president to avoid snap polls, Venizelos says
2. Woman allegedly buried alive by accident in northern Greece
3. Salaries in Greece continue to slide, dipping 1.4 pct in Q2
4. Should you bet with Kissinger on where the world is heading?
5. Cypriots divided by 1974 war seek Shariah hub
6. The shocking thought of euro-dollar parity
   Find us ...
  ... on
Twitter
     ... on Facebook   
About us  |  Subscriptions  |  Advertising  |  Contact us  |  Athens Plus  |  RSS  |   
Copyright © 2014, H KAΘHMEPINH All Rights Reserved.