Frankfurt: Europe’s tepid economic recovery is picking up pace, supported by falling oil prices and loose monetary policies but corporate lending growth, a key measure of economic health, remains weak, the European Central Bank said on Thursday.
Cheap oil also puts downward pressure on inflation, a potential headache for the bank as it spends €60 billion ($65.82 billion) a month buying assets to ward off the risk of deflation and push price growth back towards its target of just under 2 per cent.
The bank said it was confident its policies are working and that it expects prices to start rising towards the end of the year, with a further pick up in both 2016 and 2017.
Annual inflation in the 19-member Eurozone fell to 0.2 per cent in June. Economists polled by Reuters expected it to hold at that level in July, although a fall in Brent crude
prices of more than 20 per cent since May is a potential drag.
“Looking beyond the short term, the recent fall in oil prices should support economic growth, and particularly domestic demand, via gains in households’ real disposable income and corporate profitability,” the ECB said in an economic bulletin.
“Furthermore, demand for euro area exports should benefit from improvements in price competitiveness.” The bank added that recent data are consistent with continued economic expansion in the second quarter and indicators appear to confirm broadly unchanged growth rates in the short term.
The bank added that its loose policy measures were providing a visible boost for lending conditions but loan dynamics still remained weak, especially for non-financial corporations.
