De Guindos predicts a technical recession in the euro zone and high inflation


The Vice President of the European Central Bank (ECB), Luis De Guindossaid this Friday that the negative growth rates forecast for the next two quarters will cause a “technical recession” in the euro zone, and a 2023 with “less growth” and inflation that “will remain high”.

De Guindos referred to the complex macroeconomic environment during his speech at the inauguration of the economic days of S’Agaró. He has assured that the latest economic forecasts of the European Commission place as a central scenario that of a “technical recession” in the euro zone as a result of the evolution of the coming quarters, and has added that the ECB’s forecasts to be released in December will not be “very different”.

Likewise, De Guindos has called avoid conflicts between monetary and fiscal policyand has argued that it should achieve a slowdown in inflation in order to also give a clear signal of “stabilization of interest rate increases”. “In the third quarter you are already seeing a significant slowdown (of the economy in the euro zone) and the European Commission is already announcing a very probable negative growth rate, which could be extended to the first quarter of next yearwhich would be the definition of a technical recession, by accumulating two quarters with negative growth rates”, he indicated.

The ECB tries to contain inflation

The Vice President of the ECB has ensured that inflation it is affecting the disposable income of families and companies and also investments, and that the context is also one of even greater uncertainty due to the effects of the war in Ukraine. Regarding inflation, he stated that the European economy has been experiencing “a year and a half with negative surprises” along this path, and highlighted the ECB efforts to try to contain it at 2%. “The higher inflation is for longer, the greater the probability of having second-round effects,” he warned, referring to the problems that can be generated by raising wages at the same level as inflation and that this gives rise to a new price increase.

He has said that, in this context, the ECB is in a “monetary policy normalization process” and that the actions in the immediate future will depend on the evolution of macroeconomic data. From the outset, he explained that in December what to do with the ECB’s balance sheet will be discussed, and he advocated approaching any decision in this area with caution.

“The balance sheet decision should help reduce excess liquidity in the markets“, he commented, and added: “This process of reducing the balance must be done with extreme caution, because in addition to we don’t have much experience in it“. “Our goal is to keep inflation expectations anchored and signal that second-round effects are undesirable,” he added.


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