The organization’s vice president, Luis de Guindos, warns that families should not underestimate continued rising prices and asks governments to avoid a clash between fiscal and monetary policy
The European Central Bank (ECB) is hardening its discourse on the development of the region’s economy. While waiting for the monetary body to announce its next forecasts in December, the institution’s vice president, Luis de Guindos, announced this Wednesday that the eurozone is heading for a technical recession coupled with high inflation “which will last around the current level of 10% in the coming months.”
The ECB’s estimates will also suggest that price increases will begin to moderate in the first half of 2023. But Guindos warns that “inflationary tensions and their persistence should not be underestimated,” especially on the side of core and potential second-round Securities. Despite the limited growth, the agency forecasts inflation will average around 6%-7%, with underlying inflation also set to remain high.
During his speech at the XXIX Meeting of the Financial Sector, organized by Deloitte, ABC and Sociedad de Tasación, the former Spanish economy minister was inundated with pessimistic nuances about the current economic situation. “We are facing complex times. Six months ago, no one could have foreseen the possibility of a technical recession in Europe. A slowdown that will also not reduce high inflation,” he warned.
In fact, the ECB agrees with the latest OECD forecasts, pointing to negative growth rates in the Eurozone as early as the fourth quarter of the year, given the impact of the energy shock and the deterioration of the export/import price ratio. has become very expensive. According to Guindos, this situation has caused the eurozone to lose its level of income, which is now around 3% of GDP. “We spend more of our income to pay for production that we don’t have in the region,” he said.
At the time, he recalled that “houses are now more fragile than before.” And it is that according to the data that the organization manages, the savings accumulated during the pandemic have been reduced more and more intensely. But not for productive consumption, but rather because of the impact of inflation on disposable income, “particularly among the most vulnerable in society”, who allocate a greater weight of their budgets to commodities that have become more expensive, such as food.
Also worth noting among the data that call for caution is “the remarkable reduction in household intentions to buy a house”.
Given the difficulties faced by households, the Vice President of the ECB also called on governments to ensure that fiscal policies conducted during the crisis are now “more selective, more temporary and more targeted at vulnerable groups, who suffer most from rising inflation. .
“It is very important that monetary policy – restrictive – and fiscal – expansionary – do not collide,” he stressed during his speech, recalling the sudden volatility caused by the expansionary policy in the United Kingdom, which has led to a sharp increase in sovereign risk in the region.
Something that would again affect financial stability and the banking sector, for which Guindos also issued a warning message: entities should not trust themselves in the face of the improvement in profitability they have achieved with the rise in interest rates. “This situation has a certain component of illusion, because the economic situation will affect solvency and customers and banks will have to make larger provisions,” he warned.
Source: La Verdad
I’m Ben Stock, a journalist and author at Today Times Live. I specialize in economic news and have been working in the news industry for over five years. My experience spans from local journalism to international business reporting. In my career I’ve had the opportunity to interview some of the world’s leading economists and financial experts, giving me an insight into global trends that is unique among journalists.
