(Bloomberg) -- European Central Bank officials intend to spend the six weeks before their next policy meeting assessing why the euro-area economy has slowed and whether they should be concerned.
ECB Chief Economist Peter Praet, speaking at the Organization for Economic Cooperation and Development on Thursday, outlined the possible explanations. Some are temporary; others could stick.
You Can’t Beat 2017
The euro area’s 2.4 percent economic expansion last year was the strongest in a decade, and Praet noted that a deceleration from the breakneck pace of the second half was expected. The problem, he said, is that the slowdown has come sooner than anticipated. It’s also broad-based, visible in hard data as well as surveys, and across most sectors and countries.
The Season of Sneezing
Praet’s “transitory factors” comprised the unusually cold spell at the start of the year and, probably related, an outbreak of influenza. He also cited the timing of Easter -- he spoke two hours after official data showed the holiday depressed inflation data more than expected -- as well as school holidays and industrial strikes.
In Search of Workers
A factor that could hold back output in the near term, but which can be overcome, is supply-side constraints. Praet noted that capacity utilization and backlogs in for capital-goods companies are at record highs. In construction, an increasing number of firms are complaining of labor shortages.
More fundamental concerns lie in the export sector, according to Praet. Chief among those is worries about protectionism -- a key topic as U.S. President Donald Trump’s top economic officials arrived for trade talks in Beijing Thursday, with China saying it’s not willing to back down on key issues or submit to threats.
Praet was less worried about the exchange rate, saying that “signs that the past euro appreciation is dampening export growth remain limited.” He also noted that as the single currency has risen in the past year, industrial orders from outside the bloc have risen.
June or July
The economy expanded 0.4 percent in the first quarter, after three straight quarters of 0.7 percent. The ECB has repeatedly said it doesn’t believe the slowdown is a portent of worse to come. It also isn’t yet ready to rush into a decision to end quantitative-easing though. The next policy meeting is June 14. Most economists surveyed by Bloomberg see July as the more likely date to announce that bond purchases will be wound down, probably by the end of the year.
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