These new figures represent a substantial upward revision compared with the June projection exercise – of 1.3 percentage points (pp), 2 pp and 0.2 pp, respectively-. Furthermore, economic activity in the euro area is expected to slow down notably in the coming quarters. This moderation will reflect the loss of purchasing power resulting from higher-than-expected inflation, the deterioration of consumer and business confidence and high uncertainty, the energy crisis and geopolitical risks, weakening global demand, and tighter financial conditions as a result of monetary policy normalisation, as well as the dissipation of the impact of the reopening following the lifting of Covid restrictions. Indeed, qualitative indicators -such as the Purchasing Managers’ Index (PMI) or the business and consumer surveys conducted by the European Commission- show a marked moderation of activity across the main economies in both manufacturing and services in the third quarter. Meanwhile, although supply bottlenecks are easing, activity in some manufacturing sectors is still limited. These various factors behind the increase in inflation have affected European citizens in different ways. First, the rising price of energy commodities has had a direct impact on the more vulnerable households through the increase in energy bills (electricity, gas and petrol). Second, this has had an indirect effect through the rise in prices of the products whose production costs are most affected by the price of energy, such as food. In this context, European governments have adopted fiscal and other types of measures to offset the impact of inflation.
On one hand, because of higher exposure both to those sectors more closely linked to the business cycle and to individual debtors who, faced with a deterioration of macroeconomic conditions could be severely affected. On the other hand, because of the higher relative growth of rollover consumer credit (i.e., credit cards and credit lines). This, because of the possible underestimation of the risk that these products may cause, as they allow for sharp increases in borrowing that may affect repayment ability without a timely reflection in the borrower’s payment behavior. Finally, and as has been noted before, the greater reliance of some midsized banks to wholesale funding makes them more vulnerable to episodes of greater difficulties in bank lending. As already noted, the present scenario depicts significant risks that call for policy responses in different directions. The MPR is within the range of values considered neutral. However, from the policy makers’ perspective, the task of dealing with the challenges posed by this type of risks goes beyond the scope of monetary policy, and requires the concurrence and coordination of a broader set of macroeconomic and financial policies. Actually, some of these risks (e.g., those relating to the current account deficit and the just mentioned real estate sector) can be observed even in a situation where inflation remains bounded and in line with the target. At the international level, we have seen growing interest in the use of macroprudential measures.