Week in review: The ECB left rates unchanged at its meeting on Thursday and gave more details about the two purchasing programmes due to start this month: the ABSPP and the CBPP3. President Draghi has suggested that these programmes could amount to EUR 1 trillion and that the ECB hopes to raise the size of its balance sheet close to the level of 2012. Many analysts weer disappointed that there were no strong signs that the ECB will buy sovereign debt as it did at the heigh of the crisis. However, the timing of the ABSPP and CBPP3, just as the US is recovering fast and the Fed has started contemplating hiking rates earlier, may support the European economy and boost inflation through the impact on the euro. Over the last seven days alone, the euro has fallen by 1.3% to 1.25 against the dollar.
Meanwhile, activity and inflation data have confirmed that Europe is at risk of stalling. The composite PMI fell in to 52 in the euro area in September, still above 50, but the lowest level in 10 months, due to declines in France and Italy. The European Commission ESI fell from 100.6 to 99.9 in the euro area due to a drop in the industrial sector. As for inflation, both the headline and the core figures fell by 1p.p. to 0.3% and 0.8% respectively in September. The declining trend of the last few months partly reflects the weakness in domestic demand and may lead to further drops in inflation expectations.
In Portugal, the European Commission ESI actually rose by about 1 point to 101.6, suggesting that the recovery from very low levels is continuing. At this stage it’s unclear whether the situation of BES over the summer will have a significant impact on the real economy.
Week ahead: The first few data points about August industrial production are due to be released during the week in Germany, France, Italy and Spain. A consensus of analysts polled by the FT expect IP to have fallen in most countries, as a confirmation that the European economy has slowed down over the summer. In Portugal, September consumer price inflation will be released on Friday. Expectations are that inflation will remain in negative territory at -0.3%yoy.