According to the ECB, the economy is likely to start picking up only gradually in the course of next year. We are somewhat more upbeat in this respect. As we see it, although the consolidation of public-sector finances will continue to exert a drag, the impact in 2013 is however likely to be lower than this year. In addition, the relatively low external value of the euro will support the economy. The recent strong rise in German industrial new orders from abroad could well be an indicator of an imminent rebound in eurozone export demand. Moreover, low ECB interest rates, together with the unconventional measures, already provide a very accommodative monetary policy backdrop.
The aim of the as yet unused government bond purchasing program (Outright Monetary Transactions) is to ensure the proper transmission of monetary policy to the real economy by improving the functioning of eurozone financial markets. Since the program was announced, glimmers of hope have emerged in the financial sector, such as a drop in spreads on European corporate bonds. This is likely to gradually percolate through to real economic developments.
We expect key rates to remain unchanged at 0.75% throughout 2013. Apart from the hesitant economic recovery, falling inflation in the eurozone also argues against an interest rate hike next year. Inflation in the single currency area fell most recently to 2.2% (November). With unemployment high, there is no evidence of domestic cost pressure on the wage front. After 2.5% this year. eurozone inflation will probably drop to 2% next year, more or less in line with the ECB’s stability mark.