Data due may not yet show impact of ECB measures

When the European Central Bank unleashed a stimulus barrage in June, it cautioned the economy would take some time to respond. Data due this week may test its patience.

 Mario Draghi

The inflation rate remained at 0.5% for a third month in July, according to the median forecast of 42 economists in a Bloomberg survey.

The unemployment rate remained unchanged at 11.6% in June, a separate survey shows. That may fuel policymakers’ concern that annual price gains will become entrenched at a fraction of the ECB’s goal of just under 2%, and increase calls for further action.

The ECB unveiled a range of measures including a negative deposit rate and targeted long-term loans last month. While the package has helped push the average yield on bonds from Europe’s most-indebted nations to a record low and bolstered manufacturing and services in a vote of confidence, it has yet to show its impact on prices, growth and lending, as geopolitical tensions threaten to undermine the recovery.

“Speculation about an asset-purchase programme from the ECB is likely to gain further traction,” said Benjamin Schroeder, an interest-rates strategist at Commerzbank in Frankfurt.

“The crises in Ukraine and the Middle East should remain a driving factor” for the euro-area economy, he said.

The European Union’s statistics office is due to release inflation and jobless data on July 31. These releases will be preceded on July 30 by reports on euro-area business confidence and German inflation. The destiny of the euro area hinges on Europe’s largest economy, which saw gross domestic product growing 0.8% in the first quarter, four times the currency bloc’s rate.

The Bundesbank has warned that political uncertainty in some of the country’s export markets may weigh on business and said the economy may have stagnated in the second quarter.

Sentiment, as measured by the Ifo research institute, dropped more than economists predicted in July to the lowest level in nine months.

Even so, gauges of German manufacturing and services output signal a rebound in activity to levels seen at the beginning of the year, Markit Economics said last week. Similar measures for the euro area also strengthened this month in a sign of confidence that ECB stimulus will eventually support the recovery.

“It is encouraging to see the recovery in survey indicators remains reasonably resilient to rising geopolitical tensions and weak growth in global trade,” said Marco Valli, chief euro-area economist at UniCredit Bank in Milan, who sees “hard data gradually rising towards the more upbeat survey numbers.”

The ECB predicts the euro-area economy will grow 1% this year, 1.7% next year and 1.8% in 2016. It expects inflation to rise gradually over the next two years to 1.4% in 2016.

“The combination of monetary policy measures decided last month has already led to a further easing of the monetary policy stance,” Mario Draghi said on July 3. The rate banks charge each other for overnight lending has averaged at 0.04% so far this month, compared with 0.26% in May.

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