War in Ukraine could reduce eurozone GDP by 0.4%, says ECB economist

European Central Bank (ECB) Chief Economist Philip Lane has warned other officials that the conflict in Ukraine could cut euro zone economic output by between 0.3% and 0.4% this year, four people told Reuters. close to the issue.

That was the “average scenario” presented by Lane at a meeting of the Governing Council in Paris last Thursday (24), hours after Russia invaded Ukraine.

At the meeting, the central bank of the currency bloc sought to assess how the crisis could affect its plans to withdraw stimulus measures.

Lane also presented a severe scenario in which GDP is reduced by almost 1%, as well as a mild scenario in which events in Ukraine have no impact on the 19-country currency bloc – this, according to the sources, is now considered unlikely.

One source described the estimates as a “bakery bill”, while another called them “very preliminary”. A third claimed that they derive mainly from commodity prices.

All sources said Lane will make more refined projections at the ECB’s March 10 policy meeting, at which the bank is expected to decide the future of its Asset Purchase Program (APP).

The ECB has already said it will stop making new purchases under the pandemic emergency scheme after March.

Lane did not present new inflation forecasts, but said at Thursday’s meeting that there would be a significant increase in the 2022 estimate, while also indicating that estimates at the end of the projection horizon could still fall below the 2% target of the ECB.

An ECB spokesman declined to comment. The ECB’s projection horizon is currently up to 2024.