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 July 21st, 2022, and the economic data and developments cover the timeframe from June 9th to July 20th, 2022.
The high level of inflation and the normalisation of monetary policy worldwide have moderated the growth of global economic activity. The annual headline Consumer Price Index [CPI] inflation in OECD member states continued its upward trend, reaching 9.6% in May, up from 9.2% in April. Energy inflation contributed significantly to this increase. In particular, despite the fact that oil prices have fallen by 14% since June 9th, natural gas prices have risen sharply by 119% as a consequence of a significant reduction in the quantity supplied.
In the second quarter of 2022, real GDP in the Euro Area (excluding Ireland) grew by 0.3% on a quarterly basis. This increase was supported by the opening of the economy and strong activity in the tourism sector, despite the war in Ukraine, high inflation, tighter financing conditions and uncertainty. At the same time, investment in the Monetary Union (excluding Ireland) rose by 1.5% on a quarterly basis supported by growth in the four largest economies of the Euro Area.
Inflation based on the Harmonised Index of Consumer Prices [HICP] reached 8.6%, a new all-time high, in June, up from 8.1% in May. The increase was driven by higher food inflation for both processed and unprocessed food. According to the ECB’s Survey of Professional Forecasters, long-term inflation forecasts for 2026 rose to 2.2%.
The average GDP-weighted euro area 10-year sovereign bond yields fell to 1.99%, influenced by the decline in long-term risk-free interest rates and the rise in spreads as a result of the political crisis in Italy. In addition, bank equity prices and equity prices of non-financial corporations [NFCs] in the euro area fell by 12.67% and 2.84% respectively, mainly reflecting the deterioration in risk sentiment and further pessimism about long-term profitability. 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 4.2%.
Bank lending rates for businesses and households rose further in May, as mortgage rates recorded their largest monthly change in two decades. At the same time, credit standards for loans to businesses and households for home purchases tightened significantly in the second quarter of 2022. Despite these developments, the annual growth rate of loans to businesses and households remained strong in May.
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