With regard to financial and monetary conditions, our past interest rate increases continue to be transmitted strongly to financing conditions, with lending rates for business loans essentially unchanged in November, at over 5%, and mortgage rates increasing to 4%. The continuous decline in job vacancy rates, which marginally decreased again in the third quarter, suggests that the ongoing labour market adjustment may also weigh on the number of jobs. This is mainly driven by the reduction in the average hours worked offsetting the increase from the rise in employment. The latest data on total hours worked show a slight decline in the third quarter, the first since the end of 2020. However, we are seeing the first signs of a correction taking place in the labour market. The euro area unemployment rate stood at 6.4% in November, broadly unchanged from October and close to its historical low. The labour market continues to be particularly resilient to the current slowdown. Services are also set to soften in the coming months as a result of weaker activity in the rest of the economy. The slowdown in activity appears to be broad-based, with construction and manufacturing being particularly affected. Soft indicators point to an economic contraction in December too, confirming the possibility of a technical recession in the second half of 2023 and weak prospects for the near term. Economic activity in the euro area slowed slightly in the third quarter of 2023. Economic activityīy contrast, growth developments are more disappointing. Since then, the large drop in energy prices has fallen out of the calculation and inflation increased by an average of 3% between July and December. Inflation in Spain peaked in July 2022, reaching 10.7%, and disinflation set in earlier than in other euro area countries, with the rate coming down to 1.6% in June 2023. Positive energy base effects will kick in and energy-related compensatory measures are set to expire, leading to a transitory pick-up in inflation, similar to what has happened with Spanish headline inflation in recent months. The rapid pace of disinflation that we observed in 2023 is likely to slow down in 2024, and to pause temporarily at the beginning of the year, as was the case in December 2023. However, high wage pressures, the outcome of upcoming wage negotiations and intensifying geopolitical tensions add on uncertainty around the future path of inflation. Taken together, these trends reflect the indirect effect of falling energy prices, the easing of supply bottlenecks and the increasing pass-through of our monetary policy tightening to demand. Services prices have been slower to recede, but they fell sharply in November and remained stable in December. Energy inflation remained deep in negative territory in December, recording the eighth consecutive decline since May 2023.Īnother important aspect is that core inflation entered a clear downward trajectory, continuing to decline to 3.4% in December. The decline in 2023 affected all the main components of headline inflation, confirming a broad-based disinflationary process that gained momentum in the second half of the year.įood inflation has declined substantially from its peak of over 15% in March 2023, but remained high at just above 6% in December. Euro area inflation had been above 10% in October 2022 and at 8.6% at the start of 2023. The uptick from November was widely expected, reflecting base effects and the withdrawal of energy support measures. InflationĢ023 ended with an inflation rate of just below 3% in December, which was good news. I will then discuss the outlook for the euro area economy for the coming months. In my remarks today I will provide an overview of the latest economic developments and the rationale behind the monetary policy decisions that we took in December. However, more needs to be done to ensure a timely and sustainable return of inflation to our 2% medium-term target. In 2023 a lot of progress was made in curbing inflation. ![]() This was followed by nine consecutive hikes that raised interest rates by a total of 450 basis points by September last year. In December 2021 we announced a gradual reduction in our asset portfolio and in July 2022 we increased our key interest rates for the first time in 11 years. ![]() Before that, inflation had been low and monetary policy accommodative, but the surge in inflation to unprecedented levels in 2022 prompted the ECB to normalise and tighten monetary policy. ![]() ![]() Over the past two years, economic developments in the euro area have been shaped by the easing of pandemic-related supply constraints and by the energy price shock in the wake of the Russian invasion of Ukraine. Speech by Luis de Guindos, Vice-President of the ECB, at the 14th edition of Spain Investors Day
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