Provided by: European Central Bank
Official Release: PDF

From the Release: "Global Economy: Although the global economy continues to face a severe downturn, recent indicators point to a deceleration in the pace of the decline in economic activity. At the same time, global inflationary pressures have been diminishing rapidly, owing to base effects stemming from lower commodity prices, weaker labour market conditions and greater global economic slack. 

Money Supply: The March 2009 monetary data confi rm the decelerating trend in the dynamics of broad money and credit, albeit with continued high levels of volatility in short-term developments. In particular, both M3 and loans to the private sector contracted in March, with the latter contraction prevailing even after correcting for the impact of securitisation. To a large extent, these developments are likely to reflect the sharp deterioration in economic activity. The deleveraging process in the financial sector seems to be continuing, as an outflow was recorded in March for the total assets of credit institutions, mainly refl ecting the shedding of external assets and, to a lesser extent, loans.

Prices and Costs: According to Eurostat’s flash estimate, euro area annual HICP inflation was 0.6% in April 2009, unchanged from March. The decline in infl ation since last summer primarily reflects the sharp fall in global commodity prices over this period. Moreover, signs of a more broad-based reduction in inflationary pressure are increasingly emerging.

Base effects stemming from past energy price movements will play a significant role in the shorterterm dynamics of the HICP. Accordingly, headline annual inflation rates are expected to decline further and temporarily remain at negative levels for some months around mid-year. Thereafter, annual inflation rates should increase again. Risks to this outlook are broadly balanced.

Output, Demand and the Labor Market: The latest data and survey information confirm that economic activity continued to weaken in the euro area in the course of the fi rst quarter of 2009, in parallel with the ongoing downturn in the world economy. This weakening in the fi rst quarter appears to have been significantly more pronounced than projected in March. More recently, there have been some tentative signs in survey data of a stabilisation, albeit at very low levels. Overall, economic activity is likely to be very weak for the remainder of this year, before gradually recovering in the course of 2010. In particular, the substantial fall in commodity prices since the summer of 2008 is supporting real disposable income and thus consumption. In addition, external as well as domestic demand should increasingly benefit from the effects of the significant macroeconomic stimulus under way as well as from the measures taken so far to restore the functioning of the fi nancial system both inside and outside the euro area. The risks to this outlook remain broadly balanced."