Despite growing economic problems, the European Central Bank announced another large interest rate hike on Thursday, as policymakers try to bring the region’s record-high inflation under control.
Officials in Frankfurt delivered a second straight three-quarter-point hike – meeting economists’ expectations. Citing “substantial progress in withdrawing monetary policy accommodation,” they raised the deposit rate to 1.5 per cent which until July was in negative territory.
The ECB is fighting a battle on two fronts − record-high inflation and a slowing economy − with expectations of a recession before year end. The central bank is seeking a fine balance, as, by raising rates aggressively in an effort to deal with inflation, it could derail the wider economy.
Meanwhile, survey results published on Monday show that the eurozone is slowly entering into a recession with business activity slipping at the fastest rate in almost two years, as the cost-of-living crisis dampens consumer demand.
The S&P Global composite output index fell to nearly a two-year low of 47.1 in October from 48.1 in September. The reading also missed economists’ forecast of 47.5. This is the fourth consecutive month that the reading came in below 50, suggesting that the economic contraction will persist.
Survey results published on Monday show that the eurozone is slowly entering into a recession
“The eurozone economy looks set to contract in the fourth quarter given the steepening loss of output and deteriorating demand picture seen in October, adding to speculation that a recession is looking increasingly inevitable,” Chris Williamson, chief business economist at S&P Global Market Intelligence, said.
Finally, in the US, home prices continued to rise in August but at a noticeably slower rate of growth as rising mortgage rates reduced appetite of prospective buyers.
The S&P CoreLogic Case-Shiller Index showed that housing prices across the US increased by 13 per cent from a year ago, but that increase was considerably lower than the gain of 15.6 percent seen in July. The 2.6 percentage point decline was the largest month-on-month deceleration in the annual rate since the data series began in 1987.
“These data show clearly that the growth rate of housing prices peaked in the spring of 2022 and has been declining ever since,” Craig Lazzara, managing director at S&P DJI, wrote in a release.
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