The Economic Bulletin of the European Central Bank is one of its most important communication tools, as it presents the economic data and developments of the euro area and of its external environment that are taken into consideration in the decision-making processes of the Governing Council. The current Synopsis of the Economic Bulletin covers the decisions made by the Governing Council on March 10th, 2022, and the economic data and developments cover the timeframe from December 16th to March 9th, 2022.
The global economy in 2021, excluding the eurozone member states, grew by 6.3%, according to ECB calculations, despite the resurgence of the pandemic and significant bottlenecks in supply chains. The war between Russia and Ukraine is creating considerable uncertainty in the strong outlook for the global economy. Finally, real world GDP is expected to grow by 4.1% in 2022, and by 3.6% in 2023 and 2024.
Euro Area 10-year sovereign bonds yields stood at 0.74%, while the corresponding yields in the US rose to 1.95% at the end of the examined period. At the same time, equity prices of non-financial corporations fell by 12% in the euro area and by 9% in the US, while bank equity prices in the Monetary Union and the US fell by 10% and 8% respectively. Finally, the nominal effective exchange rate of the euro, as measured against the currencies of 42 of the euro area’s most important trading partners, depreciated by 1%.
Euro area GDP growth is expected to remain subdued in the first quarter of 2022, due to weak activity in late 2021, high energy prices and the impact of the war. Annual real GDP growth is expected to be at 3.7% in 2022, 2.8% in 2023 and 1.6% in 2024. Meanwhile, private consumption contracted in late 2021 and is expected to remain weak in the first quarter of 2022. Consumer confidence continued its downward trend reflecting uncertainty about the development of the pandemic as well as inflationary pressures.
According to Eurostat estimates, inflation based on the Harmonised Index of Consumer Prices (HICP) rose further in February 2022, to 5.8%, from 5.1% and 5.0% in January and December respectively. Energy prices continued to have a significant impact on HICP-based inflation, with energy inflation at a new all-time high, reaching 31.7% in February from 28.8% in January. The ECB’s baseline HICP forecasts expect average inflation of 5.1% in 2022, 2.1% in 2023 and 1.9% in 2024.
The annual growth rate of the Broad Money Index [M3] fell to 6.4% in January from 6.9% in December, amid rising volatility and despite increasing geopolitical risks, which are boosting demand for liquid assets. The annual growth in loans to the private sector increased in January 2022, where it stood at 4.6% from 4.2% in the previous month. Finally, the total volume of external financing for firms increased further in the fourth quarter of 2021. In December, the annual growth rate of external financing stood at 2.8% from 2.3% in October.
According to ECB’s forecasts, the general government budget balance in the euro area continues to improve. The general government deficit-to-GDP ratio for the euro area is estimated to have declined to 5.5% of GDP in 2021, after an unprecedented 7.2% in 2020. Finally, the euro area government debt-to-GDP ratio is estimated to have decline slightly to just below 96% in 2021 and is expected to decline further to around 89% in 2024.