While the recovery in global demand and the sizeable fiscal stimulus are supporting global and euro area activity, the near-term economic outlook remains clouded by uncertainty about the resurgence of the pandemic and the roll-out of vaccination campaigns. Persistently high rates of coronavirus (COVID-19) infection and the associated extension and tightening of containment measures continue to constrain economic activity in the short term. Looking ahead, progress with vaccination campaigns and the envisaged gradual relaxation of containment measures reinforce the expectation of a firm rebound in economic activity in the course of 2021. Inflation has picked up over recent months on account of some idiosyncratic and temporary factors and an increase in energy price inflation. At the same time, underlying price pressures remain subdued in the context of significant economic slack and still weak demand.
Preserving favourable financing conditions over the pandemic period remains essential to reduce uncertainty and bolster confidence, thereby underpinning economic activity and safeguarding medium-term price stability. Euro area financing conditions have remained broadly stable recently after the increase in market interest rates earlier in the year, but risks to wider financing conditions remain. Against this background, the Governing Council decided to reconfirm its very accommodative monetary policy stance.
Global economic activity remained on a solid recovery path at the turn of 2020-21, despite the re-intensification of the pandemic. Supplier delivery times have lengthened on the back of strong global demand. The recovery in trade also continued, with merchandise trade remaining the main driving factor, and services trade showing signs of improvement. Global financial conditions continued to be highly accommodative, with equity markets underpinned by optimism about global growth prospects and continued monetary policy support.
Over the review period (11 March to 21 April 2021) the forward curve of the euro overnight index average (EONIA) was broadly unchanged, suggesting no market expectations of an imminent policy rate change in either direction. Long-term sovereign bond yields in the euro area increased somewhat, but have remained relatively stable overall since March. Non-financial corporations' equity prices increased on both sides of the Atlantic and reached new post-financial crisis highs. In foreign exchange markets, the nominal effective exchange rate of the euro appreciated slightly.
