FXStreet (Guatemala) - Analysts at BNP Paribas noted that the protracted period of low inflation in the eurozone is a sign of a depressed economy and insufficient demand.
Key Quotes:
"Supply-side factors are also at work (falling energy prices, internal devaluation in the peripheral countries), but their beneficial effects are diluted by this widespread and lasting phenomenon.
Chronically subdued inflation signals a weak economy, and its main effects are negative: on revenue prospects, the solvency of economic agents and the effectiveness of monetary policy. It also makes job market adjustments and current account adjustments between countries more costly in terms of employment. Lastly, an extended period of low inflation increases risks of entering deflation spiral.
For all these reasons, the ECB will probably ease its monetary policy further in December. An expansionary fiscal policy would also be welcome."
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