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 June 9th, 2022, and the economic data and developments cover the timeframe from March 10th to June 8th, 2022.
The economic effects of the war and the new wave of pandemic in China are disrupting short-term global growth, mainly through commodity prices. In April, the annual headline Consumer Price Index [CPI] inflation in OECD member states, excluding Turkey, stood at 7.2%, the highest in three decades, while the annual rate excluding energy and food was 4.7%. Global financial conditions tightened as a result of monetary normalization, lower prices of risk-containing assets and rising yields.
Domestic demand in the euro area contracted in the first quarter of 2022 despite GDP growth of 0.6%. In the first quarter of 2022, the level of the Eurozone’s GDP was 0.8% higher than in the last quarter of 2019. Meanwhile, the labour market in the Monetary Union continues to improve despite the economic impact of the war in Ukraine, with the unemployment rate in April standing at 6.8%. The share of workers covered by job retention programmes fell to 1.1% of the labour force from 1.6% in December 2021.
According to Eurostat estimates, the Harmonised Index of Consumer Prices [HICP] hit an all-time high of 8.1% in May 2022, up from 7.4% in April. HICP excluding energy and food [HICPX] rose to 3.8%, as a result of higher inflation in services and non-energy industrial goods. Finally, according to the Eurosystem’s June macroeconomic projections, headline inflation is projected to remain at fairly high levels in the near term, before falling to 3.5% in 2023 and 2.1% in 2024.
Long-term government bond yields have risen globally, as inflationary pressures are reinforcing expectations of a faster normalisation of monetary policy. The average GDP-weighted euro area 10-year sovereign bond yields rose to 2.05%, while the US yields rose to 3.03%. Equity prices of non-financial corporations [NFCs] and bank equity prices in the euro area rose by 4.1% and 7.1%, respectively. In the US the equity prices of NFCs fell by 3.7% and the bank equity prices by 7.5%.
Firms reported tightening of financing conditions in April 2022, while bank lending rates for firms and households have started to reflect the increases seen in risk-free market rates, but remain at low levels. The annual growth rate of loans to non-financial corporations [NFCs] rose to 5.2% in April, up from 4.1% in March. Meanwhile, the annual growth rate of loans to households remained unchanged at 4.5% in April.
The general government deficit-to-GDP ratio for the euro area is estimated to have fallen in 2021 to 5.1% of GDP, after an unprecedented 7.1% in 2020, and is projected to fall further to 3.8% of GDP in 2022, 2.6% in 2023 and 2.4% in 2024. After a large increase in 2020, the euro area government debt-to-GDP ratio declined slightly in 2021 and is expected to continue to decline further, reaching around 90% in 2024, well above 2019 levels.
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