Eurozone Economic Contraction... Is the ECB Nearing the End of Tightening?

Indicators showing that the Eurozone economy is entering a recession phase have deepened the concerns of the European Central Bank (ECB), which will hold a monetary policy meeting on the 27th (local time).

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According to Hamburg Commercial Bank (HCOB) and S&P Global on the 24th, the July composite Purchasing Managers' Index (PMI) for the 20 Eurozone countries recorded 48.9. A reading below 50 is considered a 'contraction' phase. This PMI marked the lowest level in eight months. It declined from the previous month (49.9) due to a slowdown in manufacturing and services, and also fell short of experts' expectations (49.7).

Foreign media assessed that the Eurozone economy, after recording a mild contraction in the second quarter of this year, has fallen into a potential recession. Cyrus de la Rubia, chief economist at HCOB, stated, "The Eurozone economy will enter a contraction phase in the coming months," adding, "The German economy is highly likely to enter a recession phase in the second half of this year."

Market attention has focused on the timing of the ECB’s end to tightening. At the monetary policy meeting on the 27th, the ECB is expected to raise the deposit rate by 0.25 percentage points (to 3.75%), but there is interest in whether this will be the last tightening. With the confirmation of the Eurozone economic contraction, the possibility of ending tightening has increased. The central bank governors of Greece and Italy support a freeze based on low growth and easing inflation. Felix Feder, a European economic analyst at Aberdeen, forecasted, "The ECB’s interest rate level is approaching its peak faster," and "The rate hike on the 27th could be the last." Additionally, there are expectations that the ECB may hold rates steady in September and strengthen quantitative tightening measures such as reducing bond purchases.

However, the fact that inflation has not been controlled remains a variable. If wage and service price increases continue, the inflation rate could exceed the ECB’s target (2%) for an extended period. Bert Colijn, an economist at ING Bank, said, "Wage increases are continuously putting upward pressure on service prices," and "We maintain a hawkish concern about the impact of wages on inflation."

This content was produced with the assistance of AI translation services.