Despite the recent bout of disappointing global economic news and financial market turbulence, economic indicators like the PMI suggest that the euro-zone’s fragile recovery gained a bit of a momentum around the turn of the year. And December’s sharp drop in the number of unemployed implies that the nascent recovery may even have begun to feed through to the labour market. But the recovery is not yet strong enough to reduce the huge amount of spare economic capacity and hence ward of the threat of deflation. Accordingly, the improving outlook does not preclude the need for more action by the ECB.
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