Directions (next ten questions) : Read the following passage carefully and answer the questions given below it. Certain words/phrases have been printed in bold to help you locate them while answering some of the questions.
There is good news in the form of Europe’s unemployment falling from 11.1% in June to 10.0% in July. But unemployment generally lags behind the economic cycle. Business surveys, Which provide more up-to-date readings of activity, point to a continuing subdued recovery in Europe. The European commission’s long-running economic-sentiment indicator, which combines business as well as consumer confidence and tends to track GDP has been broadly stable since picking up in early 2015. This suggests that the Euro area is not about to break out of its unspectacular growth. This is worrying because the euro-zone economy is benefitting from a powerful triple stimulus. Lower energy costs caused by the slump in global oil prices have been providing the same effect as a tax cut. A big programme of quantitative easing (QE), has been under way since, early in the year under which the European Central Bank (ECB) is creating money to buy 60 billion ($67 billion) of pounds each month. As well as pushing down long-term interest rates QE has helped to keep the euro down on the currency markets to the benefit of exporters. Given the extent of help that the euro area has been getting, growth should be faster.
The sluggish performance leaves it vulnerable to China’s slowdown. A particular worry is the impact of weakening Chinese growth on Germany, the hub economy of the region, whose resilience has been crucial in sustaining Europe since the euro crisis started five years ago. One reason has been strong Chinese demand for traditional German manufacturing strength. Even though German exports appear to be holding up for the time being, that boost from China is waning. Lacklustre growth in the euro area will in turn make it harder for the ECB to meet its goal of pushing inflation back towards its goal of almost 2%. Although core inflation (excluding in particular energy and food) has moved up from its low of 0.6% earlier this year, to 1.0%, headline inflation has been stuck at 0.2% over the summer. There is increasing concern that the ECB’s effort to break the grip of “lowflation” will be swamped by global deflationary effects. The ECB’s council is not expected to make a change in policy and is likely to indicate that the ECB recognizes the downside risk to growth and stands ready to respond if they materialize. That may in turn produce a policy erasing later this year. One option would be to raise the amount of assets that it is buying each month from the current amount of 60 billion. A more likely decision would be for the ECB to extend the planned length of its purchase some for another year. Whether that is enough is question for another day.
