ECB Officials Maintain Hawkish View Amid Slowdown

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The ECB President Mario Draghi and other officials were seen speaking over the week as ECB offficials maintain hawkish view. The Lithuanian central bank governor and member of the ECB’s governing council, Vitas Vasiliauskas gave an interview to a German newspaper last week.

In his interview, Vasiliauskas gave hawkish comments noting that the European Central Bank can still aim for ending its bond purchases by the end of the year.

He downplayed the recent slowdown in the Eurozone economy noting that it wasn’t dramatic and said that it would be realistic for the ECB to end its asset purchases this year. He further added that the market expectations for a rate hike from the ECB, within six to nine months after ending the bond purchases, was “logical and appropriate.”

Later in the week, the ECB President Mario Draghi was speaking at a conference held in Florence, Italy. Draghi did not talk much about monetary policy at the event.

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German Industrial Production Bounced Back in March

Industrial production figures from Germany saw some positive data as the report from Destatis showed that industrial production had bounced back in March. The rebound in industrial production came following a weak start during the first two months of the year.

Data showed that industrial output rose 1.0% on a month over month basis in March. The gains came with an increase in production of capital goods and the data was higher than the median estimates of a 0.8% increase. The German economics ministry said that industrial activity could gather pace in the coming months over the year. The German economists ministry also said that the upswing was intact and attributed temporary factors such as flu outbreak, Easter holidays and strike days affecting the weak patch of data especially on the first quarter data.

“Following a steady period, industrial production should hence gather momentum in the course of the year,” the ministry said.

The rebound in industrial production comes following a soft patch of economic reports from the Eurozone’s largest economy which signaled a slower pace of economic growth in the first quarter of the year.

Compared to a year ago, German industrial output was seen rising 3.2% on the year.

In a separate report, the German trade balance also picked up slightly riding on the back of a modest increase in exports. German exports rose 1.7% on the month on a seasonally adjusted basis in March. This followed a decline of 3.1% in German exports in February.

German imports were however weaker, falling 0.9% on the month in March and extended the 1.9% decline from February.

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Looking ahead

The week ahead will mark the April inflation data. Estimates, according to the flash readings on inflation showed that the Eurozone headline inflation rate might have slowed to rise 1.2% on the year. This is a slower pace of increase compared to the 1.4% increase in inflation seen previously.

More importantly, the core inflation rate is expected to fall further with estimates pointing to a 0.7% increase in core inflation rate on a year over year basis. Core CPI has been weakening strongly after previously rising at a pace of above 1%.

The slowdown in the Eurozone’s GDP alongside the weaker pace of inflation growth is expected to see officials maintain a cautious tone. Of course, there is a strong chance that ECB officials will dismiss the weak inflation growth as being transitory.

With oil prices recently posting fresh yearly highs, the prospects of higher oil prices are likely to push consumer prices higher over time.

The ECB President Mario Draghi is also expected to speak later during the week.

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