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ECB remains supportive

April 2018

During April, the ECB confirmed that it would continue with its planned programme of monthly bond purchases until the end of September, and that asset purchases would carry on beyond this date “if necessary”. The ECB also reiterated that its current policy of ultra-low interest rates would continue “well past” the conclusion of its asset-purchase programme. 

  • The rate of inflation picked up to 1.3%
  • Rising protectionism poses a threat to growth
  • Business confidence weakened in Germany

During April, the European Central Bank (ECB) confirmed that it would continue with its planned programme of monthly bond purchases until the end of September, and that asset purchases would carry on beyond this date “if necessary”. The ECB also reiterated that its current policy of ultra-low interest rates would continue “well past” the conclusion of its asset-purchase programme. 

 “”Caution tempered by an unchanged confidence””

Although the ECB’s monetary policy stance remained unchanged, during the month, ECB President Mario Draghi acknowledged that the eurozone’s rate of economic growth had moderated. While he conceded a loss of momentum that was “pretty broad” across countries and sectors, he also highlighted the fact that “some sort of normalisation” was to be expected after four quarters of “very strong” growth. Looking ahead, Mr Draghi emphasised his own outlook of “caution tempered by an unchanged confidence” in the region’s ability to reach its inflation target of below – but close to – 2%. 

The rate of inflation in the euro area picked up in March, boosted primarily by higher prices for services food, alcohol and tobacco. The eurozone’s annualised rate of inflation climbed from 1.1% in February to reach 1.3%. Germany increased from 1.2% to 1.5%, whereas France rose from 1.3% to 1.7%. The only eurozone member state to post a negative rate was Cyprus, which has been in deflationary territory since December last year. 

Rising levels of protectionism pose a threat to the eurozone’s economic growth, according to the ECB. Higher tariffs risk not only affecting export activity, but also undermining the economic recovery by hurting sentiment. The International Monetary Fund (IMF) expects the eurozone’s economy to expand by 2.4% this year and 2% next year.

Business activity in the eurozone grew at a “solid pace” during April, according to IHS Markit, although the rate of growth has shifted into a “lower gear” against a backdrop of supply constraints and weaker growth in demand. Meanwhile, business confidence in Germany deteriorated during April, according to the Ifo Institute’s business climate survey; Ifo warned that, “High spirits among German businesses have evaporated”. Optimism in the services sector “dropped markedly”; elsewhere, confidence amongst manufacturers declined for a third consecutive month. In contrast, optimism amongst construction executives reached a record high. Over April as a whole, the benchmark Dax Index rose by 4.3% while France’s CAC 40 Index climbed by 6.8%.


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