Is the Euro Area on its way to recovery?

As many had anticipated the ECB left the Euro interest rate unchanged at 0.75%. In the recent ECB monetary policy meeting Mario Draghi stated there are still challenges the EU will have to face but it may start to show signs of recovery. So is the EU on its way to recovery? Is the worst behind?

I don’t know if the worst is behind, but the steps the ECB, lead by Draghi, has taken in recent years including cutting the interest rates and building the confidence back in the banking system in Europe, have helped reduce the risk attributed to the EU.

But the ECB President also said he expects the inflation will slowly decline during the year to 2% (currently around 2.2%). If this prediction will come true, it will imply the EU economy won’t heat up so the growth will remain very low or perhaps even negative. Moreover, the EU monetary development report still shows a decline in private loans. This is another indicator for a slow progress in the banking system and economic growth.

But the main issue will be the austerity steps the major EU countries have implemented. A recent study the IMF shows these fiscal cutting steps will have a much more damaging effect on the EU countries than many economists have earlier predicted. This could mean the EU economy will remain unstable, weak with low growth in 2013, despite the regain in the banking system.

U.S Jobless claims Increased

According to the recent U.S. jobless claims report that was published today, January 10th, the number of initial claims rose during the week ending on January 5th; the total initial claims rose by 4k and settled at 371,000 claims compared the previous week.

This news may have contributed to the depreciation of the USD today.

Currently, the prices of major commodities including gold, silver and oil are rising. The major stock markets are edging up and the Euro is hiking. This movement seems to coincide with the positive speech the ECB President has given along with ECB’s decision to keep the rate unchanged.

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