Market Speaks: High Inflation Continues To Dampen Spending And Production Says ECB Economic Bulletin

10 Nov 2022 , 03:13 PM

The European Central Bank or the ECB stated in its latest Economic Bulletin that high inflation continues to dampen spending and production by reducing purchasing power and pushing up costs for firms. Severe disruptions in the supply of gas have worsened the situation further, and confidence across sectors has fallen rapidly. After a strong performance in previous quarters, when those sectors most affected by the pandemic-related restrictions reopened, demand for services is now slowing. The central bank stated that in a context of persistent geopolitical uncertainty and tighter financing conditions, global economic activity is growing more slowly. Worsening terms of trade are weighing on incomes in the euro area, as the prices paid for imports rise faster than those received for exports. At the same time, while the labour market continues to perform well, the weakening of the economy could lead to somewhat higher unemployment in the future. Incoming data confirm that risks to the economic growth outlook are clearly on the downside, especially in the near term. Euro area output displayed solid growth in the first two quarters of the year. Following a growth rate of 0.6% in the first quarter of 2022, there was another strong increase in real GDP in the second quarter of 2022, with it rising by 0.8% quarter on quarter. Domestic demand and, albeit to a lesser extent, net trade positively contributed to growth, whereas changes in inventories had a small negative impact. On the production side, output growth was mainly supported by a strong increase in value-added services.Powered by Commodity Insights