ECB Economic Bulletin: Economic Recovery Surprised Positively; Growth to Continue

20 June 2024

By Isabel Teles – FRANKFURT (Econostream) – The economic recovery in the euro area at the beginning of 2024 was broader than the March 2024 staff projections anticipated, and growth should continue with the support of private consumption, according to the latest Economic Bulletin published Thursday by the European Central Bank.

‘The euro area economy recovered at the start of 2024 by more than expected in the March 2024 ECB staff projections, with a boost from net trade and rising household spending’, the ECB said in the bulletin.

In Q124, euro area real GDP rose by 0.3%, the bulletin noted.

‘This pick-up in growth, which follows five quarters of broadly stagnant activity, reflected a positive contribution from net trade and domestic demand and a negative contribution from changes in inventories’, the ECB said. ‘Survey results point to continued growth in the second quarter.’

The updated annual average real GDP growth was expected to be 0.9% in 2024, and to strengthen to 1.4% in 2025 and to 1.6% in 2026, the bulletin said.

‘Over the medium term, the negative impact of the past monetary policy tightening is seen to gradually fade, with activity supported by an assumed easing of financing conditions in line with market expectations for the future path of interest rates’, the ECB said. ‘Growth will also benefit from a resilient labour market, with the unemployment rate declining to historically low levels later on in the projection horizon.’

Fiscal and structural policies should focus on making the economy more competitive and productive to ‘help to raise potential growth and reduce price pressures in the medium term’, the ECB said.

The inflation outlook had ‘improved markedly’ since last September, but domestic pressures were still elevated, the ECB noted, adding that inflation expectations had declined in all horizons.

‘At the same time, despite the progress over recent quarters, domestic price pressures remain strong as wage growth is elevated, and inflation is likely to stay above target well into next year’, the ECB said. ‘The latest Eurosystem staff projections for both headline and core inflation have been revised up for 2024 and 2025 compared with the March projections.’

Wage growth would moderate over the course of the year, and there were signs that the rise in unit labour costs were being partially absorbed by profits, according to the bulletin.

‘A central element in the June projections is the expected gradual easing of nominal wage growth from initially still elevated levels as upward impacts from inflation compensation pressures in a tight labour market fade’, the ECB said.