(Source: 21st Century Economic Report 2024-07-18)
The European Central Bank keeps interest rates unchanged as scheduled
On the evening of July 18th, Beijing time, the European Central Bank held a monetary policy meeting and decided to keep the three key interest rates unchanged. The announcement issued by the European Central Bank shows that the main refinancing interest rate, marginal lending rate and deposit mechanism interest rate will be maintained at 4.25%, 4.50% and 3.75% respectively.
Eurozone CPI increased by 2.5% year-on-year in June
Eurostat released data on July 17 showing that the final CPI in the Eurozone rose by 2.5% year-on-year in June; in May it rose by 2.6% year-on-year; the core CPI excluding energy, food, tobacco and alcohol in the Eurozone rose by 2.9% year-on-year in June, both in line with expectations. What do you think of the inflation trend in the Eurozone? What impact will the European Central Bank's gradual move towards easing have on the Eurozone economy and financial markets? Let’s listen to the interpretation of Li Yingting, a researcher at the Bank of China Research Institute.
There is limited room for inflation to fall in the Eurozone
Li Yingting: The euro zone's harmonized CPI increased by 2.5% year-on-year in June, down 0.1 percentage points from May, but still higher than the 2.4% in April. Among them, the year-on-year growth rates of food prices and energy prices were 2.4% and 0.3% respectively, down 0.2 and 0.1 percentage points from May, which were the main reasons for the fall in inflation. Service prices and industrial product prices were 4.1% and 0.7% respectively, the same as in May.
In terms of member states, there are large differences in inflation levels among euro area member states. For example, Belgium's year-on-year adjusted CPI growth rate increased from 1.5% in January to 5.4% in June, while Finland's inflation rate dropped from 1.1% in January to 0.5% in June. Among the major member countries, the adjusted CPI of Germany and France increased by 2.5% year-on-year in June, a slight decrease from May; Italy's inflation rate was as low as 0.9%, and Spain's inflation rate was 3.6%, with a growth rate second only to Belgium.
Judging from the trend since 2024, the space for inflation to fall in the Eurozone has been narrow, and future performance will largely depend on the trend of service prices. Food prices and energy prices, which contributed significantly to the fall in inflation in the early stage, are less likely to fall further - energy prices have returned to slight growth from a sharp year-on-year decline, and food price growth has fluctuated during the year but has basically returned to the long-term average. Service prices in the Eurozone are highly sticky, especially in areas such as transportation and medical health, which increased from 3.5% and 2.9% in January 2024 to 4.3% and 3.6% in June respectively.
Eurozone cross-border capital outflow pressure increases
Li Yingting: The European Central Bank has already started to cut interest rates for the first time in June, and the probability of another interest rate cut in September is also high. The increasingly loose monetary environment in the Eurozone will help drive the growth of durable goods consumption and investment, thereby stimulating economic growth. In terms of financial markets, the Eurozone has experienced greater pressure on cross-border capital outflows in recent years. The European Central Bank's interest rate cut before the Federal Reserve will further promote the flow of financial capital to the US market and increase the pressure on securities investment outflows.
IMF revise up Eurozone economic growth forecast for 2024
In terms of news, the International Monetary Fund (IMF) raised its 2024 economic growth forecast for the Eurozone by 0.1 percentage points to 0.9% in the latest World Economic Outlook Report released in July. Has the Eurozone economy bottomed out? What factors contribute to a more optimistic economic outlook? For related interpretation, let’s connect with Zhao Yongsheng, a researcher at the National Institute for Opening up at the w88 casino and a doctoral supervisor at the Sorbonne University in Paris.
The overall trend of the EU economy is upward
w88 casino Yongsheng: Although the growth rate has only been increased by 0.1 percentage points, which is relatively small, in recent years, the economic growth rates of the European Union and the Eurozone have basically been at the level of 1% or less than 1%, and the economic growth rates of various countries are generally the same. Therefore, if calculated on a 1% basis, an increase of 0.1 percentage points is not small. Looking at the overall trend, the International Monetary Fund has adjusted its expectations. Judging from the results of my recent field research and inspections, the Eurozone and the entire EU, including France and other major economies, have indeed bottomed out and rebounded.
This is because some countries in the Eurozone, such as Germany recently, have actually entered a recession; while some countries have not declined, but their overall economy is still relatively sluggish, with economic growth rarely exceeding 1%. Overall, the Eurozone economy is recovering, the situation is improving, and the prospects are relatively good.
Investment is the main driving force for economic recovery
w88 casino Yongsheng: On the one hand, from the perspective of economic laws, if there is no interference from external factors, the economy will inevitably rebound after it reaches a certain stage. This is a general trend.
On the other hand, euro area countries have used a series of policy tools to deal with economic difficulties. For example, increasing investment, even if the sovereign debt burden of some countries increases, investment will still be prioritized. In addition, some countries stimulate consumption by issuing benefits and subsidies. Therefore, investment and consumption have become important driving forces of economic growth.
In terms of GDP composition, the main driving forces include investment, consumption and import and export. In terms of import and export, the performance is actually pretty good. But overall, among these three major driving forces, I think investment is still the most important driver of economic growth in the euro area. In the future, investment will have a greater impact on the economy.
Emerging economies may narrow regional differences
"Global Financial Connection": Will the ECB's interest rate cut accelerate the economic differentiation of the Eurozone countries?
w88 casino Yongsheng: The European Central Bank's interest rate cut may indeed lead to economic differentiation in the euro area countries. Since the economic conditions of each region are different, interest rate cuts are more beneficial to some regions, especially those emerging industries that are in the stage of capital demand, such as digital industry, artificial intelligence industry and new energy industry. These industries have a huge demand for capital, and even a 0.5 percentage point or just 0.1 percentage point cut in interest rates will have a significant stimulating effect.
In contrast, for those areas that mainly rely on traditional industries, such as real estate, the pulling effect of interest rate cuts will be relatively weak. As a result, economic polarization may intensify.
In the future, the economic performance of each region will more obviously depend on its integration into the new economy. The original regional differences between Eastern Europe, Central Europe, Western Europe, Northern Europe and Southern Europe still exist, but what is more obvious is which regions are the first to integrate with the new economy, digital economy, artificial intelligence economy, green economy and new energy. These countries and economies that are the first to adapt will be more able to benefit from the ECB's interest rate cut policy.
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