The spread fell despite the rate hike
In the period between September and mid-December 2022, amid expectations of a more marked tightening of monetary policy, “longer-term interest rates grew, overall, only slightly” and “spreads on government bonds narrowed” . In the Economic Bulletin, the ECB dwells on the performance of Italy and Greece, which seems to contradict those who feared a surge in spreads between announcements of rate hikes and the dismantling of Qe. “The spreads on ten-year Italian and Greek government bonds – notes the document – have fallen, respectively, by 18 and 22 basis points”.
A winter recession possible, but mild
Furthermore, according to the ECB, the economy of the euro area, in the fourth quarter of 2022 and in the first quarter of 2023, “could undergo a contraction due to the energy crisis, the high level of uncertainty, the weakening of the global economic activity and the more restrictive financing conditions” and with “downward-oriented” risks, but “any recession would be relatively short-lived and mild”. “Positive signs” are underlined by employment, which increased by 0.3% in the third quarter, and by unemployment at a new all-time low of 6.5% in October. “Price pressures remain strong in all sectors”, notes the ECB.
In 2023 contained growth, downward estimates
Any recession would follow a one-third in which the euro area economy had already slowed to 0.3%, and herald a 2023 in which “growth is expected to be subdued and has been revised significantly downwards,” he writes. the ECB recalling the projections published on 15 December: economic growth of 3.4% in 2022, 0.5% in 2023, 1.9% in 2024 and 1.8% in 2025.
context of exceptional uncertainty
The same projections indicate, “in a context of exceptional uncertainty”, that inflation is expected to fall from an average of 8.4% in 2022 to 6.3% in 2023, going from 10% in the last quarter of 2022 to 3.6% in the corresponding period of 2023, to then decrease to an average of 3.4% in 2024 and 2.3% in 2025. The ECB document notes that the budgetary measures to support families in response to the high -energy and high inflation “should curb the increase in prices during 2023. Once lifted, however, inflation will start to rise again”.
Payroll supervision
And the Eurotower promises high vigilance on wage negotiations: “Wage dynamics show a strengthening, which is supported by the vigor of the labor markets and by some adjustment of wages aimed at compensating workers for the increase in inflation. Given the expected permanence of these factors, the projections formulated in December 2022 indicate that wages will record growth rates well above historical averages, pushing inflation upwards over the entire period under review”.
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The ECB: “Interest rates must continue to rise significantly”
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