Page 15 - Economic report 2018

Interest rates are rising in the USA and and inflation rebounds. As for unconventional
stable in the Eurozone. monetary policy, in December 2018 the ECB
finally ended the asset purchase programme
started in 2015, after gradually reducing it
throughout the year. However, in March 2019, faced with falling economic prospects in the
Eurozone, the ECB decided to approve new measures to inject liquidity into the banking
system, in order to encourage lending and boost the economic recovery.

$/€ EXCHANGE RATES
Chart 1.5

Source: ECB.

Due to higher interest rates and more favourable economic prospects for the USA than the 13
Eurozone, the dollar started to appreciate against the euro from April 2018, breaking the trend of
depreciation in the previous year. So, in December 2018, the euro was trading at $1.139, 3.8% less
than in December 2017 ($1.184 /€). This value is an average of the last four years (2015-2018). In
the Eurozone, euro depreciation raised the cost
of energy imports and consequently helped to 2018 was marked by euro
push up inflation a few tenths (reaching 2.3% depreciation and contained inflation.
in October at the time of the highest rise in
oil prices), but also helped to boost exports
outside the Eurozone. Equally, a trend can be
seen towards euro depreciation against the OIL PRICES - $ per barrel of Brent
Japanese yen (-4.5% to a rate of 127.7 yen/euro Chart 1.6
in December 2018). 90
80
70
Oil prices continued to rise until October 60
2018 (when it reached the four-year high 50
of $80/barrel as US sanctions against Iran 40
entered into force). This was followed by two 30
months of significant falls due to oversupply 20 The external environment of the Andorran economy | I. The international economy
and signs of a slowdown in the global economy 10 0
(reaching an annual low). This steep fall meant 2016 2017 2018 2019
that in December 2018 the average price of
a barrel of Brent was $57, 10.2% less than Source: The Energy Information Administration, of the US Government.
the $64 in December 2017.

In 2018, rising oil prices pushed up prices of goods and services in all economic areas,
although contracting commodity prices and the slowdown in the world economy partly
offset this effect. So, average inflation in developing countries reached 2% (1.7% in 2017),