EU Economy Brief 35/2017

Numbers of the Week

  • EU unemployment remained stable at a post-crisis low of 7.7% in July 2017, the same rate as in June but down from 8.5% in July 2016. In the euro area, unemployment also remained unchanged compared to June at 9.1%, down from 10.0% a year ago. Jobless rates still differ strongly among the largest euro-area economies with Germany reporting 3.7% unemployed, France 9.8%, Italy 11.3% and Spain 17.1%. (Eurostat)
  • The Economic Sentiment Index (ESI) for the euro area rose by 0.6 points in August 2017 to a new 10-year high of 111.9. In the EU, the ESI remained largely stable, falling 0.3 points below its post crisis high of 119 in July. The index is based on a consumer and business survey; 100 equals the long-term average. (European Commission)
  • The major European stock index Euro Stoxx 600 fell by 4.1% over the last three months until Friday morning. A strengthened euro exchange rate vis-à-vis the euro area’s main trading partners and its negative impact on exports weighed on investor optimism. This was also reflected in significant outflows from European equity funds of about $1.4bn over the last week, the largest outflows since March 2017. (FT, Onvista)
  • German small and medium-sized banks expect their annual profits to fall by 9% over the next 5 years as a consequence of the low-interest-rate environment. Although the surveyed institutions expect their profits to deteriorate at a slower pace today than they did two years ago, the sector is under pressure to reduce cost, for example by closing branches. Half of the banks can imagine a merger. (Bundesbank, BaFin)

Chart of the Week­

Euro area inflation gathered pace in August but core inflation held steady

  • Annual inflation in the euro area accelerated to 1.5% in August 2017 (flash estimate), compared to 1.3% in the previous month. The increase was mainly driven by higher energy price inflation, climbing from 2.2% to 4.0%.
  • Core inflation held steady at 1.2% but remained elevated compared to average levels over the last 4 years. The indicator excludes volatile items and provides guidance for medium-term inflation dynamics.
  • Among major euro-area economies, inflation accelerated most strongly in Spain and Germany. Spanish inflation rose from 1.7% in July to 2.0% in August; in Germany inflation climbed from 1.5% to 1.8%; France (0.8% to 1.0%) and Italy (1.2% to 1.4%) also experienced a faster rise of consumer prices.
  • The European Central Bank faces a difficult situation of healthy economic growth on the one hand and inflation rates that remain below the policy target of just under 2% on the other. A strengthened euro exchange rate also weighs on the inflation outlook as it makes imports cheaper. The ECB’s next policy announcement is scheduled for Thursday next week.

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