The European Central Bank is set to review its accommodative monetary policy in December. While the EU economic recovery is progressing moderately, the return of inflation is likely to take longer. The EU economic recovery is expected to gradually strengthen the impulse underlying the inflation process, ECB chief Mario Draghi said.
But the protracted economic weakness of the past years continues to weigh on nominal wage growth, and this could moderate price pressures. After leaving interest rates unchanged last month, the ECB Governing Council discussed all possible policy tools, including interest rate cuts. Draghi strongly hinted that the ECB may boost its stimulus in December as policymakers are increasingly concerned over the persistence of negative inflation. The ECB seems to be ready to deploy all its tools to maintain an appropriate degree of monetary accommodation.
In the meantime, German economic growth moderated in the third quarter on weak investment and foreign trade, while the French economy gained momentum on the back of domestic demand. Germany’s third quarter GDP climbed 0.3 per cent from the second quarter, when it grew 0.4 per cent, as expected. French GDP registered 0.3 per cent sequential growth after stagnating in the second quarter.
In its latest World Economic Outlook, the IMF cut its growth projections for Germany, but retained the outlook for France. It forecasted Germany to grow 1.5 per cent this year and France to expand 1.2 per cent.
Finally, Britain’s unemployment rate fell to the lowest level since early 2008 and employment rose to a record in the Q3.The ILO jobless rate dropped to 5.3 per cent in the September quarter from 5.6 per cent in the previous three months. There were 1.75 million unemployed Britons in the third quarter, down by 103,000 from the June quarter.
The number of people in work surged by 177,000 to 31.21 million. Earnings including bonuses increased by a less-than-expected three per cent, and that excluding bonuses grew 2.5 per cent. A marked rise in employment and fall in the unemployment rate points to a further tightening of the labour market, which is supportive to interest rates rising sooner or later. However, the marked slowdown in earnings and wages growth in September itself argues against an early rate hike.
This report was compiled by Bank of Valletta plc for general information purposes only.