ECB Governing Council member Olli Rehn highlighted in a statement that reduction in policy restrictions could commence in June as long as “inflation continues to fall as projected.”
But he also addressed the predominant risks, identifying “geopolitics” as the primary source of uncertainty. He specifically pointed to the “deteriorating situation in Ukraine” and the “possible escalation of the Middle East conflict” as critical factors with potential ramifications on the European economy, especially concerning energy prices and overall economic stability.
Looking ahead to ECB’s June meeting, the council will review an “updated assessment of the inflation outlook, the dynamics of underlying inflation, and the strength of monetary policy transmission.”
This upcoming analysis will be crucial in determining whether ECB has sufficient confidence that inflation is sustainably converging towards its target, leading to a decision to “start to ease the stance of monetary policy and cut interest rates.”
However, Rehn cautioned that this prospective easing is conditional on the absence of “further setbacks, for instance in the geopolitical situation and therefore in energy prices.”
German ZEW jumps to 42.9, euro’s depreciation helps
German ZEW Economic Sentiment jumped from 31.7 to 42.9 in April, well above expectation of 35.1, and marks the highest level since March 2022. But Current Situation Index improved just slightly from -80.5 to -79.2.
Eurozone ZEW Economic Sentiment also surged from 33.5 to 43.9, above expectation of 37.2. Current Situation Index climbed 6.0 pts to -48.8.
ZEW President Achim Wambach noted, “A recovering global economy is boosting expectations for Germany, with half of the respondents anticipating the country’s economy to pick up over the next six months.”
This optimism is largely driven by improved assessments of the economic situations in Germany’s major export destinations. The positive outlook is further buoyed by the expected “appreciation of the US dollar against the euro”, which could benefit Eurozone exporters by making their goods more competitive in international markets.
Full German ZEW release here.