ECB: Eurozone growth will continue to be poor, but inflation may go up.
According to Vice President Luis de Guindos of the European Central Bank, inflation may momentarily increase while the eurozone’s economic growth is expected to remain modest.The European Central Bank (ECB) predicts that inflation in the eurozone will rise in the upcoming months before slowing down once more. This is because rising energy and food costs are still a major source of uncertainty in the face of elevated geopolitical tensions and unfavorable weather conditions.
Luis de Guindos, vice president of the European Central Bank, made the remarks at the start of the 26th Frankfurt Euro Finance Week on Monday.Inflation in the Eurozone decreased in September and October, with the latter’s percentage standing at 2.9% based on Eurostat’s flash estimate.
“We expect a temporary rebound in inflation in the coming months as the base effects from the sharp increase in energy and food prices in autumn 2022 drop out of the year-on-year calculation,” de Guindos stated. “But we see the general disinflationary process continuing over the medium term.”The vice president made it clear that the European Central Bank’s (ECB) key interest rates will not be lowered anytime soon, meaning that borrowing costs for households and businesses will remain high for a considerable amount of time in order to decrease inflation to the target 2% rate.
“Today, inflation is significantly lower, but it is still expected to stay too high for too long,” he stated.
Inflation is only expected to return to target in late 2025, according to the ECB’s most recent prediction, with consumer price rise essentially stagnant at about 3% for the majority of 2024.According to the Financial Times, Christine Lagarde, the president of the European Central Bank, made remarks regarding the potential for key rate reductions a few days before. She stated that the ECB will not begin to cut rates for at least “the next couple of quarters.”
The International Monetary Fund (IMF), which has cautioned that the Middle East conflict may increase inflation in Europe, concurs with the hard stance against hasty rate cuts.The Eurozone might briefly enter a recession before picking up speed again.Prior to the most recent stop, the ECB raised interest rates ten times in a row, setting a record. High borrowing prices hindered the ability of firms in the eurozone to make investments and also had a detrimental effect on domestic demand.
Global economic growth is also decelerating in the interim.
“The growth outlook for the euro area economy has deteriorated further, as global growth momentum slows and tighter financing conditions are increasingly weighing on investment and consumer spending,” de Guindos stated.”Weaker industrial activity is spilling over to services,” he stated. “It is likely that the euro area economy will remain subdued in the near term.”
According to the most recent Eurostat data, the eurozone economy shrank by 0.1% in the three months ending in September. Should GDP remain negative for the final three months of the year, the single-currency region may formally enter a recession (a recession is typically defined as a decline in GDP over a string of consecutive quarters).
The European Central Bank (ECB) is hopeful that the economy will expand in the upcoming year, nevertheless.”It is likely that the euro area economy will remain subdued in the near term,” de Guidos stated. “However, it looks set to strengthen again over the medium term, as inflation falls further, household real incomes recover and the demand for euro area exports picks up.”
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