ECB downgraded Eurozone GDP projections for 2023! Lagarde EU debates
Subscribe here: https://bit.ly/eudebates On the GDP projections that we have, we have, as you said, slightly updated 2022. We have downgraded 2023 by 0.4 percentage points and we now have growth at 0.5%. Then we have 1.9%, followed 1.8%, so there is no upgrade or downgrade of those projections, and we believe that after this – a number of phenomena have faded – growth will actually return. Let me give you a couple of examples of those factors that will fade. One comes to mind, which has been impacting both GDP and inflation, is the supply chain bottlenecks that have prevented operations from functioning properly, and which is obviously fading out significantly at the moment. I think one question mark that we need to have on our mind is what happens to China and what role will China play in that context, which will be very interesting to monitor and to also assess as well.
Another reason why staff is offering those projections has to do also with the strength of the labour market, and the fact that we are currently at rock bottom unemployment rate for the euro area. And given the shallow and short-lived recession that we anticipate at the turn of this year, these employment numbers should remain high, and participation should continue to increase. There is clearly a question mark as to how the energy market is going to pan out, and how our economies in three years’ time will develop new ways of operation, will go into renewable sources of energy, hopefully, and what impact the price of LNG will have on us, and what kind of substitution we will benefit from in the very sad assumption where the Russian weaponisation of fossil fuel was to continue. But all in all, we believe that this 1.9% followed by 1.8%, which is roughly the growth rate that we had previously for the euro area, has chances to return, and recovery would come after the short and shallow recession that we anticipate at the turn of the year.
Stay connected with us!
Facebook: / eudebates.tv
Twitter: / eudebates
Instagram: / eudebates.tv
#eudebates the unique initiative aiming to promote debate, dialogue, knowledge, participation and communication among citizens. #ECB #Lagarde #inflation #rates #Economy #Eurozone
ECB hikes rates, sees significant increases ahead as it announces plan to shrink balance sheet. The European Central Bank opted for a smaller rate hike at its Thursday meeting, taking its key rate from 1.5% to 2%, but said it would need to raise rates “significantly” further to tame inflation.
It also said that from the beginning of March 2023 it would begin to reduce its balance sheet by 15 billion euros ($15.9 billion) per month on average until the end of the second quarter of 2023.
It said it would announce more details about the reduction of its asset purchase program (APP) holdings in February, and that it would regularly reassess the pace of decline to ensure it was consistent with its monetary policy strategy.
The widely expected 50 basis point rate rise is the central bank’s fourth increase this year. A basis point is equivalent to 0.01%.
It hiked by 75 basis points in October and September and by 50 basis points in July, bringing rates out of negative territory for the first time since 2014.
“The Governing Council judges that interest rates will still have to rise significantly at a steady pace to reach levels that are sufficiently restrictive to ensure a timely return of inflation to the 2% medium-term target,” the ECB said in a statement.
‘We’re not pivoting’
At a news conference following the announcement, ECB President Christine Lagarde said: “Anybody who thinks this is a pivot for the ECB is wrong. We’re not pivoting, we’re not wavering, we are showing determination and resilience in continuing a journey where we have. ... If you compare with the Fed, we have more ground to cover. We have longer to go.”
“We’re not slowing down. We’re in for the long game.”
The central bank said it was working on euro zone inflation forecasts that had been “significantly revised up,” and sees inflation remaining above its 2% target until 2025.
It now expects average inflation of 8.4% in 2022, 6.3% in 2023, 3.4% in 2024 and 2.3% in 2025.
However, it sees a recession in the region being “relatively short-lived and shallow.”
It comes after the latest inflation data for the euro zone showed a slight slowing in price rises in November, although the rate remains at 10% annually.
Lagarde told CNBC’s Annette Weisbach, “One of the key messages, in addition to the hike, is the indication that not only will we raise interest rates further, which we had said before, but that today we judged that interest rates will still have to rise significantly, at a steady place.”