Andy Scott, associate director at HiFX, comments on this morning’s EU GDP figures
After all, the ECB has cut lending rates to almost zero – making it cheaper than ever to borrow money – as well as cutting deposit rates to a negative, effectively charging banks to hold on to excess money. It is also engaged in a Q.E. light programme to increase the availability of cash that banks and financial companies have to lend.
Andy said: “However, it’s important to consider the bigger picture and when you do, it’s clear that the future appears to be rather gloomy still. Unemployment remains incredibly high for a group of mostly developed economies at 11.5% and though it dropped at the end of last year and the start of this year, it hasn’t fallen since May.
“It’s difficult to boost economic activity if you have large numbers of the population dependent on government support, and evidence of the lack of domestic demand can be seen in another problem area – inflation. The current annual CPI rate of just 0.4% is a long way from the ECB’s target rate of close to 2%, and though some of the drops in price pressures can be attributed to lower energy prices, a lot is to do with companies in Europe cutting prices to try and boost – or maintain – demand. Finally, you have the issue of structural reforms that are needed to move economies away from such reliance on government spending, towards private investment. France’s Q3 GDP figures are a perfect example of this with growth of 0.3%; which was a surprise given monthly data. But, when you drill down into the figures, you see that the upside was down to government spending.
“Recovery is not a word that can be associated with most of the eurozone economies, and until it is, the future doesn’t look so bright. Accordingly, the euro’s reaction to today’s data was much like the economy – flat!”
