Synopsis of the Economic Bulletin – Issue 3.2022

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 April 14th, 2022, and the economic data and developments cover the timeframe from March 10th to April 13th, 2022.
The war between Russia and Ukraine and the spread of the SARS-Cov-2 pandemic in Asia have resulted in a strain on world trade and the creation of new shortages of raw materials. Commodity prices have fallen since March 10th, with oil and gas prices down by 18% and 30% respectively. The consumer price index for OECD member states rose to 7.7% in February, and is expected to continue its upward trend as a result of the continued rise in commodity prices. Finally, both the US Federal Reserve and the Bank of England raised their interest rates in March.
Euro area GDP growth slowed in the last quarter of 2021 and is estimated at 5.3% for the full year. The ECB has revised its forecasts downwards for 2022 and 2023. The unemployment rate in the Monetary Union continued its downward trend in February where it stood at 6.8%. Finally, despite the lift of the restrictive measures to contain the pandemic, which boosted economic activity, high energy prices following the war in Ukraine have contributed to a decline in consumer confidence, which in March reached its lowest level since the start of the pandemic.
According to Eurostat’s flash estimate, annual HICP inflation rose to 7.5% in March, affected by the war in Ukraine and high energy prices. In particular, energy inflation stood at 44.7% in March, up from 32% in February. The surge in energy prices has probably also contributed to increases in other components of the HICP. Finally, based on market estimates, inflation in the euro area is expected to peak at around 8% during the third quarter of 2022, fall slightly below 7% by the end of 2022, and settle slightly above 2.5% in 2025.
The average GDP-weighted euro area 10-year sovereign bond yields rose to 1.35%, while the US yields rose to 2.55%. At the same time, bank equity prices and equity prices of non-financial corporations in the euro area rose by 4.4% and 5.2%, 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 1.9%.
Bank lending rates for firms and households have started to reflect the increases observed in market interest rates, although they remain low. According to an ECB survey published in April 2022, credit standards on loans to firms tightened in the first quarter of 2022 as a result of uncertainty about the economic outlook, supply chain disruptions and high energy and input prices. ECB policies continued to support financing conditions, however banks expect this positive impact to decline over the next six months, turning negative in the case of asset purchases as a result of the expected normalisation of monetary policy.

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