August 9, 2022

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ECB Lagarde downplays recession risks at Sintra Forum

ECB Lagarde downplays recession risks at Sintra Forum

European Central Bank President Christine Lagarde said the central bank could raise interest rates faster, if necessary.

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President of the European Central Bank Christine Lagarde On Tuesday, she played down fears about a recession in the euro zone, also saying that her team is ready to raise interest rates at a faster pace – if necessary – if inflation continues to rise.

Central Bank officials gather in Portugal for their annual conference, with the focus on rising consumer prices. The eurozone is expected to see a headline inflation rate of 6.8% this year – well above the European Central Bank’s 2% target.

This comes at a time when economists are assessing whether the Eurozone will survive the recession this year. The region has seen a deterioration in growth levels amid an energy crisis, sanctions against Russia and food insecurity – to name a few.

“We have remarkably revised our growth forecast for the next two years. But we still expect positive growth rates due to local buffers against losing growth momentum,” Lagarde said on Tuesday at the Sintra Forum.

European Central Bank An emergency meeting was held earlier this month to Announce a new tool Aimed at addressing retail risks in the Eurozone. However, it left market players with questions about the timing and scale of the mechanism.

Investors are concerned about high inflation and are closely following what the European Central Bank says and does. Investors are also concerned about high levels of debt in Europe, particularly in Italy, and how a return to tighter monetary policy could become a fiscal constraint for these economies.

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“If inflation expectations do not improve, we will have enough information to move faster. However, this commitment depends on the data,” Lagarde added on Tuesday.

Higher or lower prices?

Speaking to CNBC, Eric Nielsen, chief global economist at UniCredit, said he does not expect this year’s forum to address disparities between public debt levels, but rather focus more on the future of monetary policy.

“Can you really push interest rates into a slump even if inflation is high? That would be extraordinary,” he said.

The European Central Bank confirmed in early June its intention to raise interest rates next month Then again after the summer. This will likely bring the ECB’s deposit rate back from negative territory and represents a huge moment for the central bank, which has kept interest rates below zero since 2014.

However, there are questions about whether Lagarde will follow through with multiple rate hikes as the region’s growth outlook grows bleaker. The European Central Bank forecast in June a GDP rate of 2.8% for the eurozone this year, but economists are starting to talk about the possibility of a year-end recession on the back of the Russian invasion of Ukraine and the impact it is having on the world. Economie.

According to Nielsen, Federal Reserve In the United States in the same position.

“There’s a very, very high chance that the Fed will end up with a rate cut toward the end of next year or something, and that’s the recession story again,” he said.

“They can’t do what they say, and they’ll do the next one and maybe again, but then it’s going to be really hard for them, whether in the US a little bit later, or in Europe,” he added. .