The organization’s vice president, Luis de Guindos, warns that families should not underestimate the persistence of rising prices and asks governments to avoid a clash between fiscal and monetary policy
The European Central Bank (ECB) hardens its discourse regarding the evolution of the economy in the region. While waiting for the monetary body to make its next forecasts public in December, the vice president of the institution, Luis de Guindos, announced this Wednesday that the euro zone is headed for a technical recession combined with high inflation “that will continue around current levels of 10% in the coming months.”
The ECB estimates will also suggest that the rise in prices 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 the core and the possible second round effects. According to the agency’s forecasts, despite limiting its growth, inflation will remain around 6%-7% on average, with an underlying inflation that will also continue to be high.
During his speech at the XXIX Meeting of the Financial Sector organized by Deloitte, ABC and Sociedad de Tasación, the former Spanish Minister of Economy was showered with pessimistic nuances regarding the current economic situation. “We are facing complex times. Six months ago nobody anticipated the possibility of a technical recession in Europe. A deceleration that is not going to reduce the high level of inflation, “he warned.
In fact, the ECB agrees with the latest OECD forecasts and points to negative growth rates already in the fourth quarter of the year in the euro zone, given the impact of the energy shock and the deterioration of the export and import price ratio. , which has become very expensive. According to Guindos, this situation has caused the euro zone to lose its income levels, which are now around 3% of GDP. “We are dedicating more of our income to pay for the production that we do not have in the region,” he said.
At this point, he recalled that “homes are more vulnerable now than before.” And it is that according to the data that the organization manages, the savings accumulated during the pandemic have been reduced in an increasingly intense way. But not towards productive consumption, but rather due to the impact of inflation on disposable income, “especially among the most vulnerable groups of society”, who allocate a greater weight of their budget to goods that have become more expensive, such as foods.
Among the data that invites prudence, it is also worth noting “the notable reduction in the intention to purchase a home by families”.
Given the difficulties that households are going through, the vice-president of the ECB also called on governments so that the fiscal policies deployed during the crisis are from now on “more selective, temporary and focused on vulnerable groups, which are the who suffer the most from rising inflation.
“It is very important that monetary policy -restrictive- and fiscal -expansionary- do not collide,” he insisted during his speech, recalling the sudden volatility caused by the expansive policy in the United Kingdom, which caused a sharp increase in sovereign risk in the region.
Something that would affect, once again, financial stability and the banking sector, to which Guindos also sent a warning message: entities should not trust themselves in the face of the improvement in profitability that 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 greater provisions,” he warned.
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