In its latest Economic Bulletin released on Thursday, the European Central Bank (ECB) affirmed that risks to economic growth are currently balanced in the near term. The ECB underscored its commitment to achieving its 2% medium-term inflation target promptly, indicating it will maintain policy rates at sufficiently restrictive levels for as long as necessary to achieve this goal.
Following five quarters of stagnation, the euro area economy showed a modest expansion of 0.3% in the first quarter of 2024. However, the ECB noted a decline in most indicators of underlying inflation in April, the latest month for which data is available, reflecting a gradual easing of price pressures.
Despite this, domestic inflation remains elevated. Looking forward, while near-term growth risks are balanced, the ECB cautioned that medium-term risks continue to lean towards the downside. Credit dynamics within the euro area were also highlighted as weak.
Market reaction to the ECB Bulletin saw the euro holding steady, with EUR/USD showing a slight decline below 1.0750, marking a decrease of 0.21% thus far.
The ECB’s assessment points to a cautious optimism in the short term regarding economic growth, tempered by ongoing challenges and uncertainties that may impact the euro area’s economic trajectory in the medium term.
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