FRANKFURT - European Central Bank (ECB) policymakers, including Mario Centeno and former President Mario Draghi, have expressed concerns about the euro-area's economic outlook, pointing to signs that suggest a possible recession in 2023. The ECB's aggressive rate policy, aimed at taming inflation, has led to a contraction in the third quarter and expectations of continued stagnation into the fourth quarter.
Despite a record cycle of monetary tightening, with deposit rates anticipated to peak at 4% into 2024, markets are predicting potential rate cuts as early as April. Inflation in the euro-area remains stubbornly high at 2.9%, still above the ECB's target of 2%. As government financial support begins to wane and wages increase, there are growing concerns about maintaining price stability.
Luis de Guindos, Vice President of the ECB, forecasted a temporary spike in inflation, while Centeno warned of a slower pace in achieving the inflation target. He also emphasized the need for reducing the ECB's balance sheet but ruled out any immediate second-round effects that could further exacerbate inflationary pressures. Additionally, Centeno dismissed any acceleration in the asset purchase program as a response to the current economic challenges.
The euro-area's economic health is under close scrutiny as policymakers navigate between curbing high inflation and fostering growth amidst fears of a downturn. The ECB's next moves will be closely watched by investors and analysts alike as they assess the impact of monetary policy on the region's fragile economy.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.