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The ECB Keeps Inflation Outlooks Intact

Christine Lagarde, the ECB president, has announced a slight revision of economic forecasts for June. The bank’s economists have reduced the coronavirus’ impact by reducing the Eurozone’s GDP decline to 8% from the previously estimated 8.7%. However, recovery for the following exercises will be more moderate. For 2021, the expected growth is two tenths lower to 5%.

Before presenting the table, the banker explained that the economic data suggests a strong rebound, in line with the ECB’s economists’ expectations. However, Lagarde has warned that economic activity remains below pre-crisis levels, and there is a high level of uncertainty about it.

The president recalled again that a large degree of monetary stimulus is necessary to continue supporting the Eurozone’s growth. Activity in the manufacturing sector has continued to improve, although the service sector has recently slowed.

The European Central Bank has kept its inflation forecasts intact. In the last few days, there had been speculation that they would be cut after August’s industrial data. 

The ECB expects prices to reach 0.3% at the end of the year. Currently, they are in negative territory. In 2021, it believes that they will rebound to 1%, and in 2022 to 1.3%.

Lagarde has stated that deflation risks have been reduced, so the ECB forecasts do not contemplate this scenario. Besides, she pointed out that the current inflation levels correspond to the fall in energy prices. 

Legarde Affirms that Recovery Depend on the Evolution of Covid-19

Today’s meeting had generated many expectations in recent weeks, as the euro has rebounded to levels that may harm the economic recovery. Lagarde has assured that it is not convenient to overreact.

Domestic demand in the Eurozone has registered a significant recovery from low levels. However, in August, uncertainty in consumer spending and business investments was noticeable. 

Philip Lane, the ECB’s chief economist, already warned of this extreme at the last meeting, given the majority of the Governing Council’s reasonable optimism. Lagarde added that the recovery would depend mainly on the evolution of the pandemic and the EU members’ policies’ success.

 

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