At the end of this week, the European Central Bank (ECB) is due to publish its latest data on the eurozone economic growth, including data on the fourth quarter growth, which will provide analysts with the freshest news on the block’s economic health as the latest figures has been ambiguous. Even though there has been a general improvement, disparities in economic strength between the EU’s strongest economies – France and Germany – are large which raises concerns. According to the Reuters polls, eurozone is to grow at 0.2 percent quarter on quarter while increasing by only 0.4 percent on a year-to-year basis. Germany is expected to increase its growth rate by 0.3 percent quarterly, which would mean a growth rate of 1.3 throughout 2014.
It is said that the eurozone’s economic forecast is improving in a piecemeal fashion while Greece is also showing signs of economic betterment. Yet, Europe’s economic backbone is still fragile including sharp discrepancies in performance between nations. Frankfurt-based ECB announced that if the upcoming growth figures are seen as unsatisfactory, further action will likely have to be taken next month. ECB’s boss Mario Draghi emphasized that the figures for the development of gross domestic product indicators would be crucial for further decision-making of the bank.
Yet, economists do not see much room for action. The main interest rate has recently been cut by a quarter of a percent to 0.25 percent, which is unlikely to change things significantly. Moreover, the ECB has already said it would not supply banks with long-term inexpensive money again unless these are channelled through loans into the real economy. Moreover, bank stress tests are going to examine the strength of the financials system and the banks that will undergo these tests will also be made to deleverage and build up their capital.
The ECB may also choose to stop soaking up money that it channelled into the system when it embarked on the program of purchasing sovereign bonds during the eurozone’s crisis. Ceasing such a policy would likely provide the financial system with liquidity of about 175 billion euros. This extra cash could in turn ease pressures in the eurozone money markets but probably would not do much to boost inflation, which is very high on the ECB’s current agenda.
