stand at 70 basis points since early March. Yields on financial sector debt have also fallen by around 12 basis points to 89 basis points. Overall, although corporate bond spreads are currently higher than the temporary lows reached in early 2018, they remain some 30 basis points below the levels observed in March 2016, prior to the announcement and subsequent launch of the corporate sector purchase programme The euro overnight index average(EoNIA)stood, on average, at-37 basis points over the review period. Excess liquidity increased by approximately E6 billion to stand at around e1. 904 billion The EoNIA forward curve shifted downwards over the review period. The downward movement of the curve peaked at around 15 basis points for maturities close to five years. Overall, the curve remains at below zero for horizons up to the end of September 2022, reflecting market expectations of a prolonged period of negative interest rates In foreign exchange markets, the euro remained broadly unchanged in trade-weighted terms(see Chart 4). Over the review period the nominal effective exchange rate of the euro, as measured against the currencies of 38 of the euro areas most important trading partners, appreciated by 0. 1%. This reflected a modest strengthening of the euro against the Us dollar(by 0. 1%)and the Chinese renminbi by 0.1%), as well as a more pronounced appreciation against the pound sterling(by 0.5%)and the currencies of most other non-euro area EU Member States(with the exception of the Swedish krona and the Polish zloty) These developments were partly offset by a depreciation of the euro against other major currencies, notably Japanese yen(by 0.4%)and the Swiss franc(by 0.7%), as well as against the currencies of some emerging market economies Chart 4 Changes in the exchange rate of the euro vis-a-vis selected currencies (percentage changes) ■snce7 March2019 US dollar South Korean won Croatian kuna Notes: "EER-38 is the nominal effective exchange rate of the euro against the currencies of 38 of the euro area's most important trading partners. All changes have been calculated using the foreign exchange rates prevailing on 9 Apn 2019. ECB Economic Bulletin, Issue 3/2019- Update on economic and monetary developments
ECB Economic Bulletin, Issue 3 / 2019 – Update on economic and monetary developments Financial developments 10 stand at 70 basis points since early March. Yields on financial sector debt have also fallen by around 12 basis points to 89 basis points. Overall, although corporate bond spreads are currently higher than the temporary lows reached in early 2018, they remain some 30 basis points below the levels observed in March 2016, prior to the announcement and subsequent launch of the corporate sector purchase programme. The euro overnight index average (EONIA) stood, on average, at -37 basis points over the review period. Excess liquidity increased by approximately €6 billion to stand at around €1,904 billion. The EONIA forward curve shifted downwards over the review period. The downward movement of the curve peaked at around 15 basis points for maturities close to five years. Overall, the curve remains at below zero for horizons up to the end of September 2022, reflecting market expectations of a prolonged period of negative interest rates. In foreign exchange markets, the euro remained broadly unchanged in trade-weighted terms (see Chart 4). Over the review period the nominal effective exchange rate of the euro, as measured against the currencies of 38 of the euro area’s most important trading partners, appreciated by 0.1%. This reflected a modest strengthening of the euro against the US dollar (by 0.1%) and the Chinese renminbi (by 0.1%), as well as a more pronounced appreciation against the pound sterling (by 0.5%) and the currencies of most other non-euro area EU Member States (with the exception of the Swedish krona and the Polish zloty). These developments were only partly offset by a depreciation of the euro against other major currencies, notably the Japanese yen (by 0.4%) and the Swiss franc (by 0.7%), as well as against the currencies of some emerging market economies. Chart 4 Changes in the exchange rate of the euro vis-à-vis selected currencies (percentage changes) Source: ECB. Notes: “EER-38” is the nominal effective exchange rate of the euro against the currencies of 38 of the euro area’s most important trading partners. All changes have been calculated using the foreign exchange rates prevailing on 9 April 2019. -10 -5 0 5 10 15 20 25 30 Croatian kuna Indian rupee Brazilian real Taiwan dollar Romanian leu Danish krone Hungarian forint Indonesian rupiah South Korean won Turkish lira Russian rouble Swedish krona Czech koruna Polish zloty Japanese yen Swiss franc Pound sterling US dollar Chinese renminbi EER-38 Since 7 March 2019 Since 9 April 2018
Economic activity The slowdown in euro area growth has continued, as incoming data have overall been weaker than expected in the first quarter of 2019. Real GDP increased by 0.2% in quarter-on-quarter terms in the last quarter of 2018, only marginally up compared with the previous quarter, but still below the economic expansion observed in the first half of last year(see Chart 5). Domestic demand and net trade contributed positively to gdP growth in the fourth quarter, while changes in inventories had a substantial curtailing effect. In annual terms, this resulted in a 1.8% increase in real GDP in 2018, which is well below the 2. 4% rate of growth recorded in he previous year. Although soft economic indicators remain robust overall compared with historical averages, they have continued to fall short. Particular vulnerabilities in the manufacturing and tradable goods sectors reflect a downturn in external demand which, combined with some country and sector-specific factors, suggests a continued weak growth momentum in the first quarter of 2019 Chart 5 Euro area real GDP and its components (quarter-on-quarter percentage changes and quarter-on-quarter percentage point contributions a GDP at market prices Gross fixed capital formation ■ Net exports MITiN 01 Q2 Q3 Q1 Q2 Q304 Q102 Q3 Q1 02 Q3 Q304Q1Q2Q3Q4 2014 Source: Eurostat ote: The latest observations are fourth quarter of 2018. Consumer spending continued to rise, albeit at a lower growth rate than in se by 0.2%, quart rter. in the final quarter of 2018, following a slightly lower rate of increase in the previous quarter. The main factors behind the recent weakness in consumption have been the higher oil price in the first half of 2018, delivery bottlenecks in the car industry, increased macroeconomic uncertainty and some country-specific factors. On an annual basis, consumption rose by 1.0% in the fourth quarter of 2018, which is the same rate as in the previous quarter. Annual growth of households real disposable income accelerated from 1.5%in the third quarter of 2018 to 1.7%in the fourth quarte reflecting the robustness of the labour market. Consequently, the saving ratlo owth ECB Economic Bulletin, Issue 3/2019- Update on economic and monetary developments Economic activity
ECB Economic Bulletin, Issue 3 / 2019 – Update on economic and monetary developments Economic activity 11 3 Economic activity The slowdown in euro area growth has continued, as incoming data have overall been weaker than expected in the first quarter of 2019. Real GDP increased by 0.2% in quarter-on-quarter terms in the last quarter of 2018, only marginally up compared with the previous quarter, but still below the economic expansion observed in the first half of last year (see Chart 5). Domestic demand and net trade contributed positively to GDP growth in the fourth quarter, while changes in inventories had a substantial curtailing effect. In annual terms, this resulted in a 1.8% increase in real GDP in 2018, which is well below the 2.4% rate of growth recorded in the previous year. Although soft economic indicators remain robust overall compared with historical averages, they have continued to fall short. Particular vulnerabilities in the manufacturing and tradable goods sectors reflect a downturn in external demand which, combined with some country and sector-specific factors, suggests a continued weak growth momentum in the first quarter of 2019. Chart 5 Euro area real GDP and its components (quarter-on-quarter percentage changes and quarter-on-quarter percentage point contributions) Source: Eurostat. Note: The latest observations are for the fourth quarter of 2018. Consumer spending continued to rise, albeit at a lower growth rate than in previous years. Private consumption rose by 0.2%, quarter on quarter, in the final quarter of 2018, following a slightly lower rate of increase in the previous quarter. The main factors behind the recent weakness in consumption have been the higher oil price in the first half of 2018, delivery bottlenecks in the car industry, increased macroeconomic uncertainty and some country-specific factors. On an annual basis, consumption rose by 1.0% in the fourth quarter of 2018, which is the same rate as in the previous quarter. Annual growth of households’ real disposable income accelerated from 1.5% in the third quarter of 2018 to 1.7% in the fourth quarter. Disposable income continues to be supported mainly by steady labour income growth, reflecting the robustness of the labour market. Consequently, the saving ratio -1.5 -1.0 -0.5 0.0 0.5 1.0 1.5 2.0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2012 2013 2014 2015 2016 2017 2018 GDP at market prices Private consumption Government consumption Gross fixed capital formation Net exports Changes in inventories
(expressed as a four-quarter moving average)increased from 12.0% in the third rter of 2018 to 12. 1% in the fourth quarte Euro area labour markets remain robust, despite some slowdown. Employment increased by 0. 3%in the last quarter of 2018, following an increase of 0.2% in the third quarter. Overall, employment increased by 1.5% in 2018. Employment growth slowed down somewhat in the second half of 2018, but remained strong compared with developments in GDP growth Continued employment growth combined with a drop in GDP growth in 2018 led to a moderation in productivity growth, following a modest pick-up in 2017. This may partly reflect the fact that adjustments in employment tend to lag behind changes in output. One reason for this may be that firms are cautious in their recruitment decisions, in part owing to limited flexibility regarding adjustments to longer-term employment contracts Recent short-term labour market indicators continue to point to positive but moderating employment growth in the first quarter of 2019. The euro area unemployment rate stood at 7.8% in both January and February 2019, down from 7.9% in the last quarter of 2018. This, together with the survey indicators on employment, points to further employment growth, but at a lower rate than before Chart 6 Euro area employment, Purchasing Managers' Index assessment of employment, and the unemployment rate left-hand scale: quarter-on-quarter percentage changes; diffusion index; right-hand scale: percentage of labour force) PMI assessment of employment (left-hand scale) Unemployment rate(nght-hand scale LLHLTIK -0.4 015 2017 2018 2019 Notes: The Purchasing Managers Index(PMi)is expressed as a deviation from 50 divided by 10. The lat fourth quarter of 2018 for employment, March 2019 for the PMI and February 2019 for the unemployment rate. Private consumption is expected to continue to rise at robust rates. Recent data on retail trade and new passenger car registrations point to continued growth in consumer spending in the first quarter of this year. The latest survey results signal ongoing, albeit moderating, employment growth. This should continue to support household income and thus consumer spending moreover, households net worth continued to increase in the fourth quarter of 2018, thereby providing further support to private consumption. Considered together, these factors should explain why during the first quarter of 2019 consumer confidence partly recovered from its decline over the course of 2018 and continued to stand at a level well above its long-term average ECB Economic Bulletin, Issue 3/2019- Update on economic and monetary developments
ECB Economic Bulletin, Issue 3 / 2019 – Update on economic and monetary developments Economic activity 12 (expressed as a four-quarter moving average) increased from 12.0% in the third quarter of 2018 to 12.1% in the fourth quarter. Euro area labour markets remain robust, despite some slowdown. Employment increased by 0.3% in the last quarter of 2018, following an increase of 0.2% in the third quarter. Overall, employment increased by 1.5% in 2018. Employment growth slowed down somewhat in the second half of 2018, but remained strong compared with developments in GDP growth. Continued employment growth combined with a drop in GDP growth in 2018 led to a moderation in productivity growth, following a modest pick-up in 2017. This may partly reflect the fact that adjustments in employment tend to lag behind changes in output. One reason for this may be that firms are cautious in their recruitment decisions, in part owing to limited flexibility regarding adjustments to longer-term employment contracts. Recent short-term labour market indicators continue to point to positive but moderating employment growth in the first quarter of 2019. The euro area unemployment rate stood at 7.8% in both January and February 2019, down from 7.9% in the last quarter of 2018. This, together with the survey indicators on employment, points to further employment growth, but at a lower rate than before. Chart 6 Euro area employment, Purchasing Managers’ Index assessment of employment, and the unemployment rate (left-hand scale: quarter-on-quarter percentage changes; diffusion index; right-hand scale: percentage of labour force) Sources: Eurostat, Markit and ECB calculations. Notes: The Purchasing Managers’ Index (PMI) is expressed as a deviation from 50 divided by 10. The latest observations are for the fourth quarter of 2018 for employment, March 2019 for the PMI and February 2019 for the unemployment rate. Private consumption is expected to continue to rise at robust rates. Recent data on retail trade and new passenger car registrations point to continued growth in consumer spending in the first quarter of this year. The latest survey results signal ongoing, albeit moderating, employment growth. This should continue to support household income and thus consumer spending. Moreover, households’ net worth continued to increase in the fourth quarter of 2018, thereby providing further support to private consumption. Considered together, these factors should explain why during the first quarter of 2019 consumer confidence partly recovered from its decline over the course of 2018 and continued to stand at a level well above its long-term average. 7 8 9 10 11 12 13 -0.6 -0.4 -0.2 0.0 0.2 0.4 0.6 2012 2013 2014 2015 2016 2017 2018 2019 Employment (left-hand scale) PMI assessment of employment (left-hand scale) Unemployment rate (right-hand scale)
Business investment slowed in the fourth quarter of 2018, and short-term indicators point to a possible further slowdown in the first quarter of 2019. Despite remaining positive, quarter-on-quarter non-construction investment growth declined from 1.0% in the third quarter of 2018 to 0. 4% in the fourth quarter of 2018 Available short-term indicators for the first quarter of 2019 also point to a weakening in growth. Compared with the fourth quarter of 2018, available data for the first quarter of 2019 suggest a fall in decline in industrial confidence as well as higher financial volatility. On a more positive note, capacity utilisation remains high, pointing to supply-side constraints which might call for increased investment. Looking forward, investment dynamics are expected to remain moderate. As the business cycle matures, business investment is expected decelerate in tandem with weakening external and domestic demand. In this context, the assessment of export order books and production expectations in the capital goods sector points to continued weakness so far in 2019. By contrast, while profit dynamics (i.e. internal funds for investment slowed, banks continued to report a positive net demand for loans used for investment purposes in the first quarter of 2019. Euro area trade regained some momentum at the start of 2019 but according to leading indicators it may be short-lived. According to the latest monthly nominal data(for January 2019), intra-euro area exports recovered by 1.5%, month on month, following a decrease of 0.6% in December 2018. Extra-euro area exports expanded at a stronger rate of 0.8%, month on month, compared with 0.3% in December 2018 Growth in total imports remained weak in January 2019 at 0.3% in month-on-month terms, up from 0. 1% in December 2018. Intra-euro area and extra-euro area flows advanced at the same pace. While euro area trade in goods strengthened at the start of 2019, the recovery was nevertheless insufficient to fuel stronger growth over the first quarter. Looking forward, euro area trade is expected to remain weak in the first part of 2019 The latest economic indicators suggest a sizeable moderation in the pace of rebound in the first quarter of 2019. Production showed positive signs for the first time since 2017, increasing slightly by 0.4% in quarter-on-quarter terms compared with the 1.2%drop in the fourth quarter of 2018. Survey data signal a slowdown in growth dynamics in the near term. The composite output Purchasing Managers' Index(PMi) 2018. Meanwhile, the European comis sion s Economic sentiment indicator esl fourth quarter of 2018. While the ESl stood above its long-term average, the pl the dropped to an average of 106.0 in the first quarter of 2019, compared with 108.9 in remained between the threshold of 50(which separates contraction from expansion in activity) and its historical average of 52.9 This moderation reflects in part a slowdown in external demand, compounded by some country and sector-specific factors. While the impact of some country and sector-specific idiosyncratic factors on economic activity is dissipating global headwinds continue to weigh on euro area growth and the rebound is sluggish Overall, growth is expected to continue at a slow pace ECB Economic Bulletin, Issue 3/2019- Update on economic and monetary developments
ECB Economic Bulletin, Issue 3 / 2019 – Update on economic and monetary developments Economic activity 13 Business investment slowed in the fourth quarter of 2018, and short-term indicators point to a possible further slowdown in the first quarter of 2019. Despite remaining positive, quarter-on-quarter non-construction investment growth declined from 1.0% in the third quarter of 2018 to 0.4% in the fourth quarter of 2018. Available short-term indicators for the first quarter of 2019 also point to a weakening in growth. Compared with the fourth quarter of 2018, available data for the first quarter of 2019 suggest a fall in the production of capital goods. This also reflects the recorded decline in industrial confidence as well as higher financial volatility. On a more positive note, capacity utilisation remains high, pointing to supply-side constraints which might call for increased investment. Looking forward, investment dynamics are expected to remain moderate. As the business cycle matures, business investment is expected to decelerate in tandem with weakening external and domestic demand. In this context, the assessment of export order books and production expectations in the capital goods sector points to continued weakness so far in 2019. By contrast, while profit dynamics (i.e. internal funds for investment) slowed, banks continued to report a positive net demand for loans used for investment purposes in the first quarter of 2019. Euro area trade regained some momentum at the start of 2019 but according to leading indicators it may be short-lived. According to the latest monthly nominal data (for January 2019), intra-euro area exports recovered by 1.5%, month on month, following a decrease of 0.6% in December 2018. Extra-euro area exports expanded at a stronger rate of 0.8%, month on month, compared with 0.3% in December 2018. Growth in total imports remained weak in January 2019 at 0.3% in month-on-month terms, up from 0.1% in December 2018. Intra-euro area and extra-euro area flows advanced at the same pace. While euro area trade in goods strengthened at the start of 2019, the recovery was nevertheless insufficient to fuel stronger growth over the first quarter. Looking forward, euro area trade is expected to remain weak in the first part of 2019. The latest economic indicators suggest a sizeable moderation in the pace of economic expansion. Industrial production (excluding construction) experienced a rebound in the first quarter of 2019. Production showed positive signs for the first time since 2017, increasing slightly by 0.4% in quarter-on-quarter terms compared with the 1.2% drop in the fourth quarter of 2018. Survey data signal a slowdown in growth dynamics in the near term. The composite output Purchasing Managers’ Index (PMI) averaged 51.5 in the first quarter of 2019, compared with 52.3 in the fourth quarter of 2018. Meanwhile, the European Commission’s Economic Sentiment Indicator (ESI) dropped to an average of 106.0 in the first quarter of 2019, compared with 108.9 in the fourth quarter of 2018. While the ESI stood above its long-term average, the PMI remained between the threshold of 50 (which separates contraction from expansion in activity) and its historical average of 52.9. This moderation reflects in part a slowdown in external demand, compounded by some country and sector-specific factors. While the impact of some country and sector-specific idiosyncratic factors on economic activity is dissipating, global headwinds continue to weigh on euro area growth and the rebound is sluggish. Overall, growth is expected to continue at a slow pace
Looking forward, the ECB's monetary policy measures will continue to back domestic demand. Private consumption is supported by healthy labour market conditions and ongoing employment gains. Residential investment should continue to improve, supported by growing household wealth. Business investment is expected to continue to expand albeit at a subdued pace, driven by high levels of capacity utilisation and supportive financing conditions. In addition, although the outlook for global trade has weakened, the expansion in global activity is expected to continue The results of the latest round of the ECB Survey of Professional Forecasters conducted in April 2019, show that private sector gDP growth forecasts for 2019 and 2020 were revised down by 0.3 and 0. 1 percentage points respectively, compared with he previous round conducted in late January. At the same time, the figure for 2021 remained unchanged at 1.4% The risks surrounding the euro area growth outlook remain tilted to the downside. This reflects the persistence of uncertainties related to geopolitical factors threat of protectionism and vulnerabilities in emerging markets. ECB Economic Bulletin, Issue 3/2019- Update on economic and monetary developments
ECB Economic Bulletin, Issue 3 / 2019 – Update on economic and monetary developments Economic activity 14 Looking forward, the ECB’s monetary policy measures will continue to back domestic demand. Private consumption is supported by healthy labour market conditions and ongoing employment gains. Residential investment should continue to improve, supported by growing household wealth. Business investment is expected to continue to expand, albeit at a subdued pace, driven by high levels of capacity utilisation and supportive financing conditions. In addition, although the outlook for global trade has weakened, the expansion in global activity is expected to continue. The results of the latest round of the ECB Survey of Professional Forecasters, conducted in April 2019, show that private sector GDP growth forecasts for 2019 and 2020 were revised down by 0.3 and 0.1 percentage points respectively, compared with the previous round conducted in late January. At the same time, the figure for 2021 remained unchanged at 1.4%. The risks surrounding the euro area growth outlook remain tilted to the downside. This reflects the persistence of uncertainties related to geopolitical factors, the threat of protectionism and vulnerabilities in emerging markets