LAST UPDATE 16:35
The toxic mixture of rising energy and other commodity prices and the enormous uncertainty created by the war in Ukraine are now creating significant difficulties for the economic growth of the Eurozone.
“Inflation has risen significantly and will remain high in the coming months, mainly due to the sharp rise in energy costs. Rising prices are now pervasive in the economy and upward pressures are intensifying in many sectors. Rising prices are limiting purchasing power. “While businesses are facing high production costs,” ECB President Christine Lagarde told a news conference following the central bank’s monetary policy decisions.
“At the same time, growth remained weak in the first quarter due to restrictions on halting the pandemic, while for the next period recovery is expected to remain slow due to the war,” he added.
In this context, the President of the ECB warned that “the downside risks to growth have increased significantly as a result of the war, while the upward risks to inflation have intensified further”.
“How the economy develops will depend crucially on how the conflict in Ukraine develops, the impact of existing sanctions and possible future measures,” he added.
How to raise interest rates
The President of the ECB confirmed that the Board of the central bank, based on the latest incoming data, continues to expect that the bond purchases under the asset purchase program (APP) should be completed in the third quarter.
The data “reinforces our expectation that the APP should be completed in the third quarter,” he said, adding, however, that “incoming data will continue to shape our policy. the conduct of monetary policy “.
He also clarified that at a next ECB meeting the exact time for the end of the markets within the third quarter of the year will be determined.
At the same time, Lagarde confirmed the sequence that has been decided for the interest rates, noting that first the net purchases will be completed, at some point later the decision to increase the interest rates will follow and then the increases will take place.
“Sometime later can mean a week to a few months,” she said.
“The journey has begun,” he said. “We will move with care and flexibility.”
Slow recovery
The President of the ECB referred to a number of factors that indicate “that growth in the Eurozone will be slow next year”.
“The war is already burdening business and consumer confidence, and that includes the uncertainty it has brought,” he said. “With energy and commodity prices rising so fast, households are facing higher living costs and companies are facing higher production costs. The war has also caused new upheavals. [στις εφοδιαστικές αλυσίδες] “While some new pandemic measures in Asia are contributing to supply chain difficulties.”
On the other hand, “there are other factors supporting the recovery, such as offsetting fiscal measures and the likelihood that households will benefit from the savings that have accumulated during the pandemic.” [τονώνοντας τη ζήτηση].
“In addition, the opening of sectors of the economy most affected by the pandemic and the strong labor market – with unemployment falling to a record low of 6.8% in February – will continue to support incomes and expenditures.”
The President of the ECB participated in the online press conference as she was diagnosed positive for Covid-19 disease.
D. Stolis
Source: Capital
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