1 Aug 2018
The European economy is approaching a turning point. On June 14, the European Central Bank (ECB) announced it would wind up its quantitative easing programme in December 2018, marking the end of a three-year period in which the bank unleashed massive monetary stimulus to spur growth across the continent.
The ECB’s decision reflects economic improvements across the euro zone. While growth fell to 0.4 per cent in the first quarter – a slowdown analysts attributed to a combination of extreme winter weather and strikes in France and Germany – all leading indicators point to continuing expansion over the remainder of the year. As of March 2018, the euro zone unemployment rate stood at 8.5 per cent, its lowest level since December 2008.
Despite a strengthening labour market, inflation remains sluggish. Headline inflation slowed to 1.2 per cent in April, lagging the ECB’s target of two per cent, while core inflation stood at 0.7 per cent. With Europe’s economic recovery still fragile, the bank has given very clear guidance on its policy intentions, signalling it will maintain interest rates at record lows into next year, despite the withdrawal of QE.