6  the tensions in commodity markets during 2022 were caused by the Russian invasion of Ukraine and, therefore, a prolongation of the war is still a major source of uncertainty for Europe. Moreover, although the breakdown of euro area GDP growth in the last quarter of 2022 is not yet available, growth looks to have been sustained by stockbuilding and a positive contribution from net trade, which mainly reflects a drop in imports. In addition, domestic demand fell in some of the countries for which fourth quarter data is available – in particular France and Spain –, a pattern that was also evident in the latest retail sales data for December, with sharper declines in Germany and the Netherlands. Conversely, the qualitative data available for the first quarter of 2023 point to an improvement in consumer and business confidence. Therefore, we need to continue to monitor domestic demand patterns, which will be key to modulating the convergence of inflation towards our target. The transmission of our monetary policy The current ECB hiking cycle is unprecedented in terms of its speed. Policy rates have increased by 300 bp in about half a year. The question is whether such aggressive tightening is enough to ensure a timely return of euro area inflation to 2%. We assess the impact of our measures based on the historical evidence of previous rate-hiking cycles.
However, China’s reopening may temper inflation through its impact on supply bottlenecks. Indeed, the end of the zero-COVID policy will avert production distortions caused by restrictions. In the recent past, the COVID-induced production stoppages in China were key factors behind the bottlenecks and inflationary pressures and, therefore, the reopening could be seen as net deflationary. All in all, it is difficult to disentangle the net effects of all these factors on inflation and close monitoring will be needed. The resilience of euro area growth and its composition In the second half of 2022 the euro area economy proved more resilient than expected and the slowdown in the fourth quarter of last year was less severe than anticipated . This has occurred in a context on which a significant reversal of previous supply shocks (bottlenecks and energy prices) was observed, households and firms had plenty of buffers (in particular the household savings built up during the pandemic), the post-COVID rebound in demand continued to generate positive effects and monetary policy had not yet been fully transmitted. However, there is much uncertainty about the continuity of these factors. In particular, the sharp decline in European gas prices reflects unusually mild weather, energy-saving measures and strong inventory levels, which mitigate supply risks for next winter. However, 12  Ko lerus, Diaye and Sabo ro wski (2016) “China’s Footprint in Global Co mmodity Markets”. International Mo netary Fund.