For the euro area, the ECB has counted a total of 50 soft patches since 1970 but only four recessions.17 An earlier study by the Fed counted 69 soft patches – and ten recessions – for the United States from 1950 to 2011.18 Owing, above all, to weaker short-term growth, in its latest projections the ECB staff has forecast euro area inflation to rise somewhat more slowly than initially expected up until 2021.
Because the future returns on most financial assets depend sensitively on economic conditions, asset prices - if determined in sufficiently liquid markets - should embody a great deal of investors’ collective information and beliefs about the future course of the economy.