Reduced Financial Tensions Could Accommodate a Cautious Recovery in the Euro Area

• The Conference Board Leading Economic Index® (LEI) for the Euro Area increased slightly in May, its third small gain in the last four months
• Business confidence indicators are continuing to improve, but are not yet strong enough to signal that contraction has ended
• A small rise in household consumption during the first quarter is in line with signs that consumer confidence is improving
• Raising private investment levels remains a barrier to recovery
• Financial stability is a necessary precondition for a sustained Euro Area economic recovery, but is not sufficient
• ECB monetary policy has not been transmitted effectively to lower private rates
• Borrowing conditions for businesses, especially for SMEs in troubled economies, remain poor and are hindering recovery