ECB stays optimistic on growth, driven by consumption

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The European Central bank released its economic bulletin on Wednesday last week. In the note, the central bank claimed that private consumption in the Eurozone had further room to grow. The central bank sounded optimistic as it expects the economic expansion to grow despite external headwinds.

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Growth in the Eurozone slowed over the two quarters this year. This raised concerns on the strength of the economic growth in the region. Growth has remained somewhat consistent over the past six years.

The central bank has maintained that the slowdown was largely due to external headwinds rather than domestic factors. Strong jobs and job creation is expected to keep the momentum growing.

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In the economic bulletin, the ECB noted that “Private consumption has been the main driver of the recent economic expansion, but there is still scope for further growth. As labor markets continue to improve, consumer confidence should remain elevated and private consumption should rise further.”

The slowdown in the economy comes at a time when the ECB is dialing back its massive stimulus program. According to the monetary policy meeting in June, the central bank announced that it would buy bonds at a size of 15 billion euro and eventually end the 2.6 trillion euro bond purchases at the end of December 2018.

The central bank’s plans come as it aims to end the dependence on the quantitative easing program and expects growth to rise.

Employment in the Eurozone was seen at record highs of over 107 million. The region’s unemployment rate was seen at 8.3%. The unemployment rate is still seen a full percentage point above the pre-crisis region.

The ECB was hopeful that low-income households could be the beneficiaries and also contribute to the consumption-driven growth.

The central bank mentioned that the losses from the financial crisis had not recovered everywhere. While on one hand, private consumption is seen to be strong in Germany and France, elsewhere in countries such as Italy and Spain, consumption was still recovering.

The ECB’s bulletin was also defending its monetary policy against widespread criticism. The central bank said that low rates did not inflate bubbles but said that it was cautious. The credit growth, according to the central bank did not indicate any signs of consumption driven particularly by the accommodative monetary policy.

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“There is little evidence that low interest rates have led to generalized increases in household indebtedness, supporting the view that the overall economic expansion is sustainable,” the central bank said in its defense.

The ECB’s economic bulletin comes at a time when recent data showed that growth might have slowed in Germany. Industrial output and factory orders declined in June. The data signaled that business sentiment weakened amid the continued uncertainty surrounding global trade.

The U.S. President Trump and the EU Commission President, Jean-Claude Juncker had previously met to negotiate on trade and to soothe the escalating tensions. The U.S. President had previously threatened to impose higher tariffs on auto imports from the Eurozone.

This could have had a major impact on the German economy which is the Eurozone’s largest economy and the main driving force in the region. Growth in the region started to slow down since the first quarter of this year.

The ECB’s bulletin comes as the central bank did not make any new tweaks to its forward guidance at the previous meeting. Any major decisions are likely to come by at the September meeting where the monetary policy committee will have more data to assess the economic situation in the Eurozone.

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