European Central Bank forecasts 8 percent contraction this year, still historically steep but better than a previous estimate.
The European Central Bank said the economic slump from the coronavirus will be slightly less marked than feared this year thanks to a rebound expected for the third quarter.
The Frankfurt authority tweaked its projection for eurozone gross domestic product on Thursday at a meeting where it held off from any policy changes. It now expects an 8 percent contraction this year — still historically steep but improved from a previous estimate of 8.7 percent.
The recovery expected for next year will be slightly less expansive, though, reaching 5 percent growth, instead of 5.2 percent, then 3.2 percent in 2022 instead of 3.3 percent.
ECB President Christine Lagarde said incoming data and surveys point to a “strong rebound” in the eurozone economy during the current quarter with a “notable recovery” in consumption.
Still, she pointed to slowing momentum in the service sector and uncertainty on the future path of the pandemic as factors dampening the outlook.
Surging euro, slumping inflation
Lagarde said at a news conference that the central bank is also closely monitoring the euro’s surge against other international currencies, but it’s unfazed by a recent drop in prices.
ECB governors discussed the strengthening euro during its monetary policy meeting, amid concerns that the foreign-exchange trend could hinder exports — and ultimately hold down the inflation rate, which remains far short of the target.
“To the extent that appreciation of the euro exercises negative pressure on prices we have to monitor carefully such a matter, and this was indeed extensively discussed during our Governing Council,” Lagarde told journalists.
The Frenchwoman would, however, not be drawn into commenting on the actual trading level of the euro.
Still, she said the central bank would keep watch as part of its strategy to target inflation of near 2 percent.
“We will continue to monitor the developments and be very attentive to them,” she said. The euro strengthened against the U.S. dollar to reach $1.18 during the day.
Lagarde downplayed the risk of deflation, after a fall in inflation in the eurozone in August to minus 0.2 percent.
The updated ECB forecast expects inflation of 0.3 percent this year, rising to 1 percent in 2021 and 1.3 percent in 2022.
“It would not be good economic analysis or inflation analysis to conclude that because of one measure or one month of negative results we are heading towards deflation,” she said.
Source: POLITICO https://www.politico.eu/article/ecb-predicts-smaller-eurozone-slump-as-economy-rebounds/?utm_source=RSS_Feed&utm_medium=RSS&utm_campaign=RSS_Syndication