ECB Economic Bulletin: ‘The Euro Area Economy is Broadly Stagnating’

31 October 2024

ECB Economic Bulletin: ‘The Euro Area Economy is Broadly Stagnating’
Photo by the ECB.

By Marta Vilar – MADRID (Econostream) – Economic activity in the Eurozone is largely stagnating, according to the Economic Bulletin published by the European Central Bank on Thursday.

The ECB report said that recent data suggested the euro area economy had eroded again at the end of 3Q24.

‘The composite output Purchasing Managers’ Index (PMI) fell in September, bringing the average indicator for the third quarter down to the 50-point threshold, which suggests that the euro area economy is broadly stagnating’, said the publication.

After the volatility seen in the manufacturing sector during the summer season, forward-looking data indicate that this sector shrank again, according to the document.

‘For services, surveys show an uptick in August, likely supported by a strong summer tourism season, but the latest data point to more sluggish growth’, the report said.

However, the ECB believed the economy would recover in a longer term, as consumption is expected to strengthen, it said.

‘The gradually fading effects of restrictive monetary policy should support consumption and investment. Exports should contribute to the recovery as global demand rises’, the report said.

Inflation would rise in the coming months as energy-related base effects fade away, according to the ECB, which reiterated that inflation would return to the 2% target in the course of 2025.

‘The disinflation process should be supported by easing labour cost pressures and the past monetary policy tightening gradually feeding through to consumer prices’, the document said.

While the ECB Economic Bulletin said that risks to the economy were ‘tilted to the downside’, it cited both potentially upside and downside surprises to the inflation outlook.

‘Inflation could turn out higher than anticipated if wages or profits increase by more than expected. Upside risks to inflation also stem from the heightened geopolitical tensions’, said the report.

However, downside risks might arise from low confidence and worries about geopolitical factors, a stronger-than-expected dampening of demand due to tight monetary policy or a weaker global economic outlook, the document said.