While terror has dominated the headlines in recent weeks, from the economic front the Eurozone continues to deliver promising signals. Leading indicators suggest a further strengthening of the recovery of the Eurozone economy. Against that backdrop, the ECB is preparing another injection of monetary stimulus.
Next week, on December 3, the ECB has its next policy meeting. ECB-president Mario Draghi and other Board members have already indicated that they are planning to announce additional monetary stimulus. The timing of this is rather remarkable. Almost every available economic indicator shows that even though the Eurozone is still some way removed from normality, it is clearly strengthening at the moment. Business confidence is now at the highest level since mid-2011, credit growth has accelerated to the fastest pace since October 2011 and the unemployment rate stands at its lowest level since early 2012. At 1.1%, core inflation is still uncomfortably low, but in recent months it has shown the strongest increase since early 2012.
The contrast with 2011 is remarkable. Then, the ECB raised its policy rate in two steps from 1% to 1.5%. Today, while the economic backdrop is not all that different, the ECB is planning to significantly step up its monetary stimulus. Such measures would have been very welcome a few years ago. What their impact will be in the current climate is less clear.
The 2011 rate hikes were rapidly revealed as a clear policy mistake (the hikes were reversed by the end of 2011). The verdict on the stimulus measures that will be announced next week will be determined in coming years.