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The European Central Bank’s key interest rate is unlikely to change unless the eurozone economy is hit by another big shock, a member of its executive board said Wednesday.
The ECB last month left its key rate at 2% for the third straight meeting, with inflation close to its target.
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Paul Hannon
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Retail sales in the eurozone unexpectedly inched lower in September, contrasting with some of the rosier sentiment among consumers in recent months.
Volumes fell back 0.1%, the same rate as in August, statistics agency Eurostat said Thursday. Economists polled by The Wall Street Journal had instead expected a 0.2% increase.
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Ed Frankl
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Annual inflation picked up pace in France at the end of the summer, despite a political stalemate holding back economic activity, as the European Central Bank looks likely to keep interest rates untouched.
Consumer prices rose 1.1% on year this month, EU-harmonized figures published by the country’s statistics authority showed Tuesday. That was a little less than economists had expected and keeps the rate below the 2% level targeted by the ECB, but nonetheless marks an increase to the fastest rate of annual inflation since the beginning of the year.
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Joshua Kirby
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By Ed Frankl
Eurozone manufacturing is showing signs of life again after industrial production jumped unexpectedly in December, further signaling that the recent slump in manufacturing in the bloc may be coming to a close.
Total production rose on 2.6% on month in December, according to figures published Wednesday by European Union statistics…
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By Ed Frankl
Industrial output in the eurozone contracted for the third month in a row November, reflecting the continued downturn in the sector.
Total production fell 0.3% on month in November, according to figures published Monday by European Union statistics agency Eurostat, after a 0.7% decline recorded in October. It matched expectations of economists polled by The Wall Street Journal.
Durable consumer goods led the decline, with output falling 2.0%. Production of intermediate goods declined 0.6% while for capital goods it tumbled 0.8%. Energy production, however, recorded a rise in output of 0.9%.
However, there has been evidence that recent struggles in the industrial sector in the eurozone could be bottoming out. A key survey of purchasing manufacturers said sentiment rose in December in the manufacturing industry.
Among larger eurozone nations, output dipped on month by 0.3% in Germany and 1.5% in Italy, but expanded by 0.5% in France and 1.1% in Spain.
Write to Ed Frankl at edward.frankl@wsj.com
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By Joshua Kirby and Ed Frankl
The eurozone is likely to grow at a slower pace than previously expected this year and next amid weak domestic consumption and flagging global demand, with the powerhouse German economy notably set to shrink, according to fresh figures published by the European Union executive Monday.
The 20-member bloc should book growth of 0.8% this year and 1.3% in 2024, revised down from previous estimates in May of 1.1% and 1.6%, respectively, according to the European Commission.
Weak private consumption amid stubbornly high inflation lies behind the gloomier outlook for economic growth, the EC said.
“High and still increasing consumer prices for most goods and services are taking a heavier toll than expected in the spring forecast,” the commission said. Eurozone consumer prices rose 5.3% in August, failing to ease from the previous month.
The forecasts come ahead of a key European Central Bank rate-decision meeting on Thursday, when the central bank will publish its own forecasts for the bloc’s economy and inflation. The bank is widely expected to lower its estimates for growth this year.
The bloc’s economy notched growth of just 0.1% in the April-June period, according to revised figures published last week, and many economists expect the eurozone to stagnate in the second half of the year.
Germany’s economy–the largest in the bloc–is now expected to contract, according to the EC’s new estimates. Gross domestic product should be 0.4% lower on year in 2023, compared with a previous estimate of slight growth. It would be the only one of the bloc’s major economies to slip backward, according to the forecasts, which see slightly higher growth for France and Spain than previously estimated.
Closely watched economic forecasters including the German Institute for Economic Research and the Kiel-based IfW Institute last week ticked down their own expectations for German growth, which has been hamstrung by weaker industrial output.
Inflation in the eurozone is meanwhile expected to stand at 5.6% for 2023 as a whole, a slightly lower forecast than the 5.8% previously estimated by the EC. However, inflation is set to ease less rapidly next year than previously forecast, with prices to rise by 2.9% on year rather than by 2.8%, according to the new estimates.
The higher forecast comes despite an easing of the energy bills that spiked last year after Russia’s fullscale invasion of Ukraine, the commission said. Higher oil prices might slow the downward trajectory of inflation next year, but prices for services and food should ease steadily amid high interest rates, lower input prices and smoother supply chains, the commission said.
Nevertheless, a tighter monetary policy–with an unprecedent cycle of interest-rate rises by the ECB with the aim of stemming inflation–has begun to feed into the wider economy, damping industrial production and demand, the EC said. Industrial output is weakening and services growth is fading, despite resurgent tourism in many eurozone members, it said.
The sluggishness should continue next year, with little prospect of a major rebound in growth, the EC said. Global demand remains weak as the Chinese economy grinds to a halt, the commission said, meaning the bloc can’t rely on external demand to offset lower domestic consumption.
Nevertheless, lower inflation, continued strength in the jobs market and resultant rises in real wages offer some bright spots for the coming year, the commission said. The bloc’s labor market has remained “exceptionally strong,” with record low unemployment rates and rising wages, it said.
“Monetary tightening may weigh on economic activity more heavily than expected, but could also lead to a faster decline in inflation that would accelerate the restoration of real incomes,” it said. The Russia-Ukraine conflict continues to cast a pall of uncertainty over the outlook, the EC said, as does the climate crisis, which has led to disastrous wildfires and floods in many parts of the continent over the summer.
Write to Joshua Kirby at joshua.kirby@wsj.com; @joshualeokirby, and to Ed Frankl at edward.frankl@wsj.com
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By Ed Frankl
Business activity in the eurozone weakened in July, falling further below the level that marks contraction, data from a purchasing managers’ survey showed Monday.
The HCOB Flash Eurozone Composite PMI Output Index–which gauges activity in the manufacturing and services sectors–fell to an eight-month low of 48.9 in July, from a downwardly revised 49.9 in June.
The reading also fell below expectations of economists polled by The Wall Street Journal, who expected the PMI to come in at 49.7.
Write to Ed Frankl at edward.frankl@wsj.com
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By Ed Frankl
The eurozone’s unemployment rate held steady at a record low in May, a reflection of a persistently tight labor market and a signal that European Central Bank policymakers might need to act further to curb economic activity as they try to lower inflation.
The bloc’s unemployment rate was 6.5% in the month, matching the level of April, according to data from the European Union’s statistics agency Eurostat released Friday.
The May reading was the same as expectations from economists polled by The Wall Street Journal. The rate has been steadily falling since it reached 8.6% in August 2020, at the height of the pandemic.
The number of unemployed people in the eurozone in May fell 57,000 compared with April to 11.01 million, Eurostat said. Youth unemployment rate was stable at 13.9% in May.
Across the euro area, the labor market remains tight. Seasonally adjusted unemployment levels held steady in Germany, and France, at 2.9% and 7.0% respectively, while it fell by 0.2 percentage points in Italy to 7.6% and rose by 0.1 points to 12.7% in Spain, Eurostat said.
But there are signals that the labor market could be loosening. Germany earlier Friday reported that its adjusted unemployment figure–based on national standards–rose unexpectedly to 5.7% from 5.6%. This could ease the pressure on the European Central Bank, which sees a cooling labor market as a sign that its interest-rate hikes could be helping curtail economic activity in its efforts to lower inflation.
Write to Ed Frankl at edward.frankl@wsj.com
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By Joshua Kirby
The economy of the eurozone slipped into technical recession in the first quarter of the year, as forecasts were revised downward both for the end of last year and the first three months of 2023.
The bloc’s gross domestic product fell 0.1% in the first three months of the year, data from statistics agency Eurostat showed Thursday, below the previous estimate of slight growth.
The agency also lowered its final estimate for the last quarter of 2022 to a 0.1% fall from a previous flatline estimate, meaning the bloc entered a technical recession, which typically refers to two quarters of negative growth.
The reading is below the flat growth expected according to an average of economists’ polled by The Wall Street Journal ahead of the release.
Some economists nevertheless anticipated a potentially weaker showing. The revision to a decline was likely, analysts at UniCredit said ahead of the release, pointing to worse figures in Germany and Ireland and weakness in private consumption.
Germany, the bloc’s largest economy, itself entered recession in the first quarter as household spending was squeezed by high inflation rates, according to figures published at the end of last month.
Both government and household consumption were lower on the quarter in the eurozone, as were both imports and exports, Eurostat said.
Compared with the same period the previous year, GDP rose 1%, Eurostat said. The agency had previously estimated a 1.3% rise on the year.
Write to Joshua Kirby at joshua.kirby@wsj.com; @joshualeokirby
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The European Central Bank on Thursday lifted interest rates by 25 basis points, slowing the pace of tightening as it delivered a seventh straight increase, indicating it’s not ready to press the pause button.
“We are not pausing,” ECB President Christine Lagarde told reporters at a news conference, adding that the stance was “very clear.”
The increase lifted the ECB’s main rate to 3.25%, near a 15-year high.
“The inflation outlook continues to be too high for too long,” the ECB Governing Council said in a statement at the conclusion of its policy meeting.
“Headline inflation has declined over recent months, but underlying price pressures remain strong. At the same time, the past rate increases are being transmitted forcefully to euro area financing and monetary conditions, while the lags and strength of transmission to the real economy remain uncertain,” the ECB said.
Lagarde told reporters that the lending survey informed the decision to lift rates by a quarter point rather than a half point. She said there was a strong consensus behind the quarter-point move, while acknowledging some policy makers had preferred a half-point hike.
The euro
EURUSD,
initially slumped after the statement, but rebounded sharply to trim a loss versus the U.S. dollar after Lagarde said the ECB wasn’t prepared to pause the rate-hiking cycle. The euro was down 0.2% at $1.1035 after trading as low as $1.1003. The euro has rallied 3% versus the dollar so far in 2023.
European government bond yields were also lifted after Lagarde ruled out a pause. The yield on the 10-year German government bond
TMBMKDE-10Y,
or bund, was up around a half of a basis point at 2.289%.
The ECB move comes after the Federal Reserve on Wednesday delivered a 10th consecutive rate increase, but signaled that it was prepared to hold off on further tightening depending on incoming economic and financial data. Asked if the ECB could continue on a tightening path if the U.S. central bank paused, Lagarde dismissed the notion that ECB decisions were “dependent” on the Fed.
Market participants, meanwhile, have priced in three Fed rate cuts by year-end. The ECB, in contrast, was expected to deliver further monetary tightening.
Inflation in the eurozone continued to run at a 7% year-over-year clip in April, roughly in line with market expectations, but a modest acceleration from March. Core inflation, excluding food, energy, alcohol and tobacco, ticked down a tenth to 5.6% from 5.7%.
A slowing eurozone economy, however, has bolstered arguments for bringing the monetary tightening cycle to an end, economists said. The ECB’s bank lending survey released Tuesday showed a tightening in conditions, with the largest tightening in credit standards for the last two quarters since the sovereign debt crisis.
The ECB in March shrugged off worries about the banking sector, delivering a half-point rate hike but signaling that future decisions would be made on a meeting-by-meeting basis, abandoning a longstanding policy of “forward guidance” aimed at massaging market expectations around future rate moves.
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Eurozone inflation eased more than expected in January, reaching an eight-month low, but price pressures persisted beyond energy as the European Central Bank gets ready for further interest-rate increases.
Consumer prices rose 8.5% in January compared with the same month a year earlier, down from a 9.2% increase in December, according to preliminary data from the European Union’s statistics agency Eurostat released Wednesday.
This marks the lowest inflation rate since May, after three consecutive declines following a record high of 10.6% in October.
Economists polled by The Wall Street Journal expected inflation to fall to 9.1%.
The decline in inflation was driven by moderating energy prices, which increased by 17.2% compared with a 25.5% rise in December. However, food, alcohol and tobacco prices climbed 14.1% on year, accelerating from the 13.8% increase recorded the previous month.
The core inflation rate–which strips out the more volatile categories of food and energy–stood at 5.2% in January, unchanged from December.
The European Central Bank raised interest rates at an unprecedented pace in 2022 in order to tame high inflation. The bank is widely expected to raise interest rates by 50 basis points on Thursday, which would bring the deposit rate to 2.50%, and further increases are expected as the eurozone’s economy is proving more resilient than anticipated and inflation remains high.
Eurozone inflation data for January includes an estimate for Germany as the official release has been postponed to next week due to technical problems.
Write to Xavier Fontdegloria at xavier.fontdegloria@wsj.com
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