StatsGuru: 11-November-2013

Why did the European Central Bank cut interest rates?

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The European Central Bank surprised markets by cutting interest rates decisively by a quarter point last week. This followed news that growth in Europe and the Euro zone had been low or stagnant, and negative in places. As Table 1 shows, only the UK reported growth of over one per cent. Even Germany's growth was less than that. The Euro zone as a whole continued to shrink. Meanwhile, as Table 2 shows, in most parts of Europe, inflation simply has not been a problem - while Germany's is 1.2 per cent, the Euro zone average is 0.7 per cent.

Troubled countries like Spain and Greece are experiencing deflation. Meanwhile, low growth has caused the unemployment problem to persist, as Table 3 reveals. In Spain and Greece more than half of the under-25 workforce is unemployed, but youth unemployment seems to be a major problem throughout Europe, even in the UK. There is some marginally good news from industrial production; Eastern European countries like Poland have seen a pick-up in industrial growth, as Table 4 shows, and so has Spain. But, overall, the Euro zone has seen industrial output continue to shrink considerably.

Consumer confidence, as measured by retail sales growth, has not returned, either, as Table 5 points out, except in Poland and the UK - the outliers in terms of growth. The UK is also an outlier in terms of the Purchasing Managers' Index, pictured in Table 6. It is also worth noting, in Table 7, that the pound and the euro have moved in tandem against the dollar - indicating that their exchange rates are both likely determined by the actions of the US Federal Reserve and not domestic considerations.