The European Central Bank met this week, as always, but changes in tone could be detected throughout as officials assessed the current state of economic activity. Until today, the ECB had followed a philosophy which erred on the side of caution, namely that “growth risks are tilted to the downside,” following policy rates which would remain at present levels or lower levels for an extended—and unspecified—period of time.
But, so it seems, the ECB’s overall sentiment is turning more positive.
Indeed, ECB Governing Council member Benoit Coeure noted, “The latest incoming data have shifted the balance of risks for growth towards neutral territory in my view,” at a recent Brussels event. “But at the same time, measures of underlying inflation in the euro area remain subdued and our projected path of inflation still remains highly conditional on our policy stance.”
The economy appears to show strong, broad-based growth throughout the Euro-zone. As such, Society Generale Group ECB observer, Anatoli Annenkov responds: “With continued strong data in the euro area, we believe an increasing number of governors will soon come round to this view (balance of risks broadly balanced) likely leading to a change in the communication at the June meeting when new Eurosystem staff forecasts are presented. For now, however, the political uncertainties are likely to dominate.”
Net easing on corporate loans in the euro zone put tighter margins on businesses, but easier collateral requirements and more broadly designed non-interest rate charges helped to sustain growth. In addition, easier credit standards for housing loans, in the first quarter, helped banks to see rising volumes in a stronger second quarter. Thus, among individual euro zone countries, the banks in Italy, Germany, and the Netherlands were able to ease access to mortgages, but credit standards remained more rigid in Spain and in France.
Essentially, says ING Diba Germany and Austria chief economist Carsten Brzeski, they are focusing on stability in France. In a recent note, he comments, “Even though we still expect the ECB to give its first signs of tapering at the June or July meeting, it looks extremely unlikely that the ECB wants to steer market expectations in between the first and second rounds of the French presidential elections.”
The ECB concludes that “the easing impact of competitive pressure” was broadly spread throughout large euro area countries, excepting Germany.