MNI POLICY: EZ Growth "Failing To Gain Momentum": ECB Bulletin

By Luke Heighton

     FRANKFURT (MNI) - Europe's economy is expected to further weaken, the ECB

said Thursday, as softening global growth dynamics and weak international trade

continue to weigh on the euro area outlook for 2019.

     First quarter GDP growth was "somewhat better than expected," the bank said

in its July Economic Bulletin, but incoming data and survey information point to

"somewhat weaker growth in the coming quarters."

     Here are the key points:

     - Euro area trade "does not appear to be gaining momentum," with the 0.2%

positive net trade contribution to euro area GDP growth in Q1 2019 was driven

primarily by "extraordinarily strong exports to the United Kingdom," most likely

associated with an exceptional increase in inventories in the run-up to the

original Brexit date.

     - Global economic activity continued to weaken in Q2 2019, and the drop in

the global services output Purchasing Managers' Index in June raises the risk of

a more broad-based deterioration in the global growth outlook.

     - Consumer confidence stabilised in the first and second quarters of 2019.

In July it increased slightly, remaining at a level above its long-term average.

"Looking ahead, private consumption should continue to grow steadily. Recent

data on the volume of retail sales and new passenger car registrations point to

higher consumer spending in the second quarter of 2019."

     - The latest survey results also signal further labour market improvements,

which should continue to support household income and consumer spending. At the

same time, activity in the services and construction sectors is resilient and

the labour market continues to improve.

     - However, the prolonged presence of uncertainties, related to geopolitical

factors, the rising threat of protectionism and vulnerabilities in emerging

markets, is dampening economic sentiment, notably in the manufacturing sector.

     - Against this overall background, the Bulletin confirmed, in July the

Governing Council opted to adjust its forward guidance on interest rates, while

underlining the need for a highly accommodative stance of monetary policy "for a

prolonged period of time."

     - "In this context, the Governing Council has tasked the relevant

Eurosystem Committees with examining options, including ways to reinforce

forward guidance on policy rates, mitigating measures such as the design of a

tiered system for reserve remuneration, and options for the size and composition

of potential new net asset purchases."

--MNI Frankfurt Bureau; +49-69-720-146; email: luke.heighton@marketnews.com

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com

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