Incoming information since the last Governing Council meeting in early December is in line with the Governing Council's baseline scenario of ongoing, but moderate, growth of the euro area economy. In particular, the weakness in the manufacturing sector remains a drag on euro area growth momentum. At the same time, ongoing, albeit decelerating, employment growth and increasing wages continue to support the resilience of the euro area economy.
The risks surrounding the euro area growth outlook, related to geopolitical factors, rising protectionism and vulnerabilities in emerging markets, remain tilted to the downside, but have become less pronounced as some of the uncertainty surrounding international trade is receding. While inflation developments remain subdued overall, there are some signs of a moderate increase in underlying inflation in line with expectations. Against this background, the Governing Council kept its monetary policy stance unchanged at its meeting on 23 January 2020.
The unfolding monetary policy measures are underpinning favourable financing conditions for all sectors of the economy. In particular, easier borrowing conditions for firms and households are supporting consumer spending and business investment. This will sustain the euro area expansion, the build-up of domestic price pressures and, thus, the robust convergence of inflation to the Governing Council's medium-term aim.
