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Euro zone April inflation confirmed at 1.7%

Euro zone April inflation confirmed at 1.7%

Euro zone prices rose by 1.7% in April, EU statistics agency Eurostat confirmed today, while slightly revising upwards its estimates for core inflation.

Eurostat said consumer prices in the 19-nation euro zone were 1.7% higher year-on-year, the same level as the flash estimate published on May 3, and up from 1.4% in March.

The acceleration offers some mild relief to the European Central Bank, which targets inflation of just below 2%, although the jump was likely related to the later timing of Easter this year.

On a Monthly basis, euro zone prices increased by 0.7%, as markets had expected, from 1% in March.

The core indicator watched closely by the ECB for its monetary policy decisions, which excludes volatile energy and food prices, rose to 1.4% in April on the year from 1% in March.

That compared with a flash estimate of 1.3%.

A narrower inflation indicator that excludes energy, food, alcohol and tobacco was also confirmed increasing to 1.3% from 0.8% in March. For this, the flash estimate had been 1.2%.

Inflation as a whole rose because of a 5.3% increase in energy prices, a 1.9% rise in the prices of services and a 1.5% hike of food, alcohol and tobacco prices..

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Euro zone inflation accelerates in April on energy, services

Euro zone inflation accelerates in April on energy, services

Euro zone inflation surged beyond expectations last month, mild relief for the European Central Bank, even if much of the jump was likely related to seasonal effects due to the timing of Easter.

Inflation in the 19 countries sharing the euro accelerated to 1.7% in April from 1.4% a month ago, beating expectations for 1.6%, Eurostat data showed today.

More crucially, underlying prices excluding food and energy, a figure closely watched by the ECB, picked up to 1.3% from 1%.

This saw it erase a worrisome dip a month earlier and hit its highest rate since October on a jump in services costs.

The ECB targets inflation just below 2% but has undershot this for the past six years despite deploying an arsenal of conventional and unconventional tools to boost growth and prices.

But any relief from solid April figures is likely to be short lived as the ECB expects inflation to slowly sink this year and not hit its target over the next three years.

Indeed, the ECB has already announced plans to provide even more stimulus through a new round of ultra cheap loans to banks to help the economy, backtracking on earlier plans to normalise policy after years of extraordinary help.

It now expects interest rates to stay steady through the year but risks are skewed towards an even later lift-off as markets price no hike for the better part of the next two years.

The problem is that growth is faltering, mostly as Germany, the bloc’s powerhouse, struggles through an unexpected dip caused by weak export demand for its manufactured goods.

German growth could fall to just 0.5% this year, the Bundesbank said today, less than half of the euro zone’s rate, and there was no sign yet of a recovery taking hold.

Still, policymakers agree that weakness is merely a dip, not the start of a recession, and a recovery is likely coming in the second half of the year.

Supporting their argument, employment continues to rise and services remain robust, suggesting that weak external demand, partly caused by global trade tensions, were the chief culprit of the slowdown.

Separately, Eurostat said euro zone prices at factory gates eased 0.1% month-on-month in March for a 2.9% year-on-year rise, falling short of market expectations of a 0% monthly reading and a 3% annual gain.

Changes in producer prices are an early indication of trends in consumer prices, as they tend to be passed on by retailers and intermediaries to consumes.

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Euro zone factory activity contracted for third month in April – PMI

Euro zone factory activity contracted for third month in April – PMI

Euro zone factory activity contracted for a third month in April, hurt by weak global demand, rising trade protectionism and concerns over Britain’s upcoming departure from the European Union.

IHS Markit’s April final manufacturing Purchasing Managers’ Index registered 47.9, beating March’s six-year low of 47.5 and just above a flash estimate of 47.8.

But that was its third month below the 50-mark separating growth from contraction.

An index measuring output change, which feeds into a composite PMI due on Monday that is seen as a good gauge of economic health, also held below break-even. It rose to 48 from 47.2 in March.

“The manufacturing sector remained deep in decline at the start of the second quarter,” said Chris Williamson, chief business economist at IHS Markit.

“The survey’s output index is indicative of factory production falling at a quarterly rate of approximately 1 percent, setting the scene for the goods-producing sector to act as a major drag on the economy in the second quarter,” he added.

The bloc’s economy expanded a slightly better-than-expected 0.4% in the first quarter, rebounding from a slump in the second half of 2018, official figures show.

An April Reuters poll predicted growth would be 0.3% this quarter and as the bloc’s prospects have dimmed, expectations for interest rate hikes from the European Central Bank were also pushed further into next year.

Although rising from recent lows, the new orders index still showed a seventh month of decline in a row.

Stocks of raw materials were run down, backlogs of work were completed at a pace not seen in over six years and headcount was barely increased.

So while optimism picked up a touch in April – the future output index rose to 55.7 from 55.5 – it remained weak compared with historical levels.

“Some encouragement can be gained from the PMIs having risen in all four largest euro member states in April, and forward-looking indicators such as future expectations, new order inflows and the orders-to-inventory ratio having all come off their lows,” Williamson said.

“But it remains too early to call a turning point,” he added.

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Euro zone businesses started second quarter with tepid growth – PMI

Euro zone businesses started second quarter with tepid growth – PMI

Euro zone businesses started the second quarter on the back foot, with growth unexpectedly slowing again as demand barely rose despite more modest price rises, surveys showed today.

The data comes a week after European Central Bank President Mario Draghi raised the prospect of more support for the struggling euro zone economy if its slowdown persists.

IHS Markit’s Flash Composite Purchasing Managers’ Index, which is considered a good guide to economic health, fell to 51.3 this month from a final March reading of 51.6.

The reading confounded the median expectation in a Reuters poll for a rise to 51.8.

“It’s still not in recession territory by any means but is pointing to rather subdued and uninspiring economic growth, and this is reflected in the gloomy expectations,” said Chris Williamson, chief business economist at IHS Markit.

Williamson said the PMIs, if maintained, indicated second-quarter GDP growth of just under 0.2%, below the 0.3% predicted in a Reuters poll earlier this month.

As new business barely increased in April – the sub-index only nudged up to 50.6 from 50.5, perilously close to the 50 mark dividing growth from contraction – there is scant sign of an imminent turnaround.

The downturn was again led by the bloc’s manufacturing industry.

While its PMI rose to 47.8 from March’s 47.5, it spent its third consecutive month below the break-even mark and was below a median forecast for 47.9.

An index measuring output, which feeds into the composite PMI, rose to 48.1 from 47.2 but for an eighth month factories ran down old orders to keep active.

The backlogs of work index fell to a more than six-year low of 44.4 from 45.

A PMI covering the bloc’s dominant service industry fell further than expected. It dropped to 52.5 from March’s 53.3, well below the median forecast in a Reuters poll for 53.2.

“We have further signs of a manufacturing-led slowdown spreading to services,” Williamson said.

Like their manufacturing counterparts with no meaningful increase in new business, service firms turned to filling old orders.

And suggesting they see little improvement in activity over the coming year, optimism waned. The business expectations index for services fell to 62 from 62.3 the previous month.

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Euro zone banks toughen requirements for mortgage borrowers

Euro zone banks toughen requirements for mortgage borrowers

Euro zone banks are toughening their requirements of prospective mortgage borrowers, a European Central Bank survey published today showed.

Despite this demand for home purchase loans continued to swell in early 2019.

Credit standards – the boxes house-hunters have to check to receive a mortgage – tightened by 3% between January and March, lenders told the Frankfurt institution.

Meanwhile “net demand for housing loans continued to increase in the first quarter… driven mainly by the low general level of interest rates,” the ECB added.

Although demand for other forms of consumer borrowing also grew, companies’ appetite for credit was only “stable” compared with the previous quarter, marking time after continuous increases since early 2015.

January’s round of the quarterly poll of almost 150 banks had forecast a slowdown in demand for loans, as weaker economic indicators pointed to slowing growth in the 19-nation euro zone.

In the event, ‘hard’ data and ‘soft’ pointers from surveys have both confirmed that the weaker expansion seen in late 2018 has persisted into the new year.

The ECB last month lowered its annual growth forecast for 2019 by 0.6 points, to 1.1% – following in the footsteps of organisations like the International Monetary Fund.

It blamed a familiar litany of culprits including uncertainty over Brexit and trade spats between the US, China and the European Union.

Frankfurt policymakers see the soft patch lasting until around the middle of the year before a resurgence in the second half, ECB Vice-President Luis de Guindos told European Parliament lawmakers last week.

Meanwhile Portuguese finance minister Mario Centeno – who leads regular “Eurogroup” meetings of treasury bosses from the single currency area – last week said a Brexit deal and trade truces between Washington, Beijing and Brussels could help lift the clouds.

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Eurozone releases debt relief to Greece

Eurozone releases debt relieft to Greece

Eurozone finance ministers have released long delayed debt relief to Greece, saying the government had implemented reforms promised during the massive bailout that ended last year.

Greece exited its third and final international bailout in August, a turning point in its progress out of the catastrophe that engulfed the country during the debt crisis.

However the Greek government had failed to complete politically sensitive reforms such as changes to housing foreclosure rules that spooked families struggling with mortgages on their homes.

“All in all, Greece has done what was necessary to respect its commitments. The decision gives a new, very strong signal to the markets,” said EU Economics Affairs Commissioner Pierre Moscovici after talks with ministers in Bucharest.

In a statement, the Eurogroup of eurozone finance ministers accepted the view that “Greece has taken the necessary actions to achieve all specific reform commitments.”

This meant that the “conditions are in place” to unlock debt relief measures worth €970m, the statement said.

The debt relief measures are mainly profits made by the European Central Bank and other EU central banks on Greek government bonds during the bailout period.

The decision comes as hopes rise that Greece has turned the economic corner. Last month Athens issued a ten-year bond, the first major borrowing effort since its debt crisis.

The country hopes to raise a total of around nine billion euros in the markets this year to boost investor confidence in the Greek economy.

Growth is expected to reach 2.4% in 2019 after an estimated 2.1% in 2018, according to the latest International Monetary Fund projections.

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Euro zone retail sales stronger than expected in February

Euro zone retail sales stronger than expected in February

Euro zone retail sales, an indication of domestic demand, were stronger than expected in February, led by a jump in sales of non-food products, data showed today.

The European Union’s statistics office Eurostat said retail sales in the 19 countries sharing the euro rose 0.4% month-on-month for a 2.8% year-on-year gain.

Economists polled by Reuters had expected a 0.2% monthly increase and a 2.3% annual rise.

Eurostat said sales of clothes and shoes rebounded from a 0.6% slump in January to a 1.9% month-on-month rise in February and were 2% higher than a year earlier.

In year-on-year terms, sales over the internet showed the strongest gain, up 8.8% in February and accelerating from a 6.8% increase in January.

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Euro zone inflation slows to 1.4% in March

Euro zone inflation slows to 1.4% in March

Inflation in the euro zone slowed in March, data showed today, amid worries that the European economy is cooling.

The slowdown of inflation comes as signs are multiplying of slower economic growth, especially in powerhouse Germany and the bloc’s second-biggest economy, France.

The rise in consumer prices was less than analyst expectations and dipped away from the European Central Bank’s target of close to, but just below 2%.

Closely tracked core inflation, which strips out volatile energy prices, dropped to 0.8%, in a sign that demand was stalling in Europe.

Last week indications of a weak first quarter for the euro zone mounted as a closely-watched survey pointed to March output being dragged further down by manufacturing weakness.

Manufacturers in the 19-nation single currency bloc “reported their steepest downturn for six years” as pressure mounted from trade wars and Brexit fears, data company IHS Markit said.

This as the ECB added to growth worries when its chief Mario Draghi hinted that interest rates would stay low for longer than previously anticipated, to stimulate growth and inflation.

The unemployment rate in the euro zone remained stable at 7.8% in February, its lowest level since October 2008, the EU’s Eurostat said.

Unemployment in the euro zone has fallen steadily since September 2016, when it dropped below the symbolic threshold of 10%.

It is now near the average rate heading into the 2007-2008 financial crisis, when it stood at 7.5%.

Among the 19 countries that have adopted the single currency, the lowest unemployment rate in February was recorded in Germany at 3.1% and the Netherlands 3.4%.

The highest rates were recorded in Greece at 18% in December 2018, the latest data available, and Spain at 13.9%.

Across the 28 countries of the European Union, the unemployment rate stood at 6.5% in February.

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Euro zone business lending rebounds in February

Euro zone business lending rebounds in February

Corporate lending growth in the euro zone rebounded last month, European Central Bank data showed today, easing fears that banks are stopping the flow of credit to corporations amid a growth slowdown.

Corporate lending expanded by 3.7% in February, picking up from 3.4% in January.

But the reading remains well short of its post-crisis peak of 4.3% hit in September.

With growth slowing on weak export demand for manufactured goods, the ECB has already reversed course, putting plans to normalise policy on hold, announcing instead further stimulus measures to aid a still limping economy.

Fearing that banks will shut the flow of credit to firms amid a slowdown, the ECB unveiled plans to give lenders a new line of ultra cheap loans with the ultimate aim of getting cash to firms so they will continue to invest.

Credit growth to households meanwhile rose to 3.3% in February from 3.2% a month earlier, suggesting that the slowdown has yet to significantly dent consumer confidence.

The annual growth rate of the M3 measure of money supply, which often foreshadows future activity, surged to 4.3% from 3.8% a month earlier and beating expectations for growth of 3.9%.

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