Falling consumer prices in Spain and Belgium, combined with a continued decline in bank lending to businesses across the eurozone, make it increasingly likely that the European Central Bank will soon conclude that more aggressive stimulus measures are needed.
However, there were some signs that there is little immediate danger of the eurozone slipping back into an outright economic contraction, with German unemployment falling, and eurozone business confidence on the rise.
Spain’s National Institute of Statistics, or INE, Thursday said that the European Union-harmonized consumer-price index fell 0.5% in November from the same month a year ago, after a 0.2% annual drop in October. Its counterpart in Belgium said prices there fell by 0.11% from November 2013, having risen very slightly in the 12 months to October.
Germany will follow with inflation figures later Thursday, and a measure for the eurozone as a whole will be released Friday.
The consensus forecast of 22 economists surveyed by The Wall Street Journal last week was for a decline in the currency area’s inflation rate to 0.3% from 0.4% in October. That would make it the 14th straight month in which inflation was less than half the rate targeted by the ECB, of just below 2%.
The persistence of very low inflation and outright price decreases in some countries, combined with weak economic growth, has led to calls on the ECB to engage in large-scale purchases of eurozone government bonds to minimize the risk of a slide into deflation.
Deflation, usually described as a sustained period of falling consumer prices, makes it costlier for debtors to pay back loans. That is a particular danger for heavily-indebted economies such as Spain.
ECB Vice President Vitor Constancio sent the strongest signal to date on Wednesday that the ECB is prepared to buy government bonds early next year if it decides that more aggressive stimulus measures are needed.
Mr. Constancio’s remarks came days after ECB President Mario Draghi put financial markets on alert that the ECB was losing patience with ultralow levels of inflation and was ready to do more.
Speaking at Finland’s parliament Thursday, Mr. Draghi said that inflation in the eurozone is “very low” and “is expected to remain at around current low levels over the coming months, before increasing gradually during 2015 and 2016.”
He also repeated that should the ECB need to fight risks of too long a period of low inflation, “the Governing Council is unanimous in its commitment to using additional unconventional instruments within its mandate.”
The ECB said Thursday that, compared with the same month a year earlier, bank lending to the private sector continued to fall in October, although at a slightly slower pace than in the previous month. Compared with September, lending to households rose by EUR4 billion ($4.99 billion), while loans to businesses fell by EUR3 billion.
The central bank had hoped to revive lending to business through a program of cheap, four-year loans to banks announced in June, part of a package of stimulus measures that was followed up in September with programs to buy covered bonds and asset-backed securities.
“There is little evidence in this data that the stimulative measures announced by the ECB in June and September are having much positive impact,” said Howard Archer, an economist at IHS Global Insight.
Economists say the long decline in lending may be due as much to weak business confidence as a reluctance on the part of banks to provide credit.
A survey released by the European Commission Thursday indicated that business confidence is once again on the rise. Concerns about tensions between the EU and Russia, as well as the weakening economic outlook, saw confidence dip over the summer, but the survey found manufacturers and retailers became more upbeat for the second straight month in November.
Despite a slide in consumer confidence that reflected worries about the jobs market, the overall Economic Sentiment Indicator for the eurozone rose to 100.8 from 100.7, and further above its long-term average of 100.
While bank lending is weak across the currency area, the German labor market remains strong. The country’s labor office reported Thursday that total jobless declined by 14,000 in adjusted terms in November, following a decline of 23,000 in October. The November total was far better than economists’ expectations of a decline of 1,000.
“Despite restrained economic growth, the labor market has developed favorably,” said the head of the labor agency, Frank-Jürgen Weise.
Another survey released Thursday found German consumers are heading into the Christmas season with increasing confidence. The GfK indicator for December increased to 8.7 in after November’s 8.5. GfK uses data from the current month to derive a figure for the coming month.
The survey indicates that while policy makers and economists fret over the threat posed by low inflation to the eurozone’s medium-term growth prospects, it may be helping to support consumer spending right now.
“As a result of the extremely low rate of inflation, salary and pension increases are making a real difference to Germans’ financial situation,” GfK said.