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Sunday, June 4, 2023

Eurozone Economic Growth may Drop to Zero – ECB

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Eurozone economic growth has slumped and could soon wind down to zero, the European Central Bank (ECB) vice president said on Monday.

We are seeing that in the third and fourth quarters there is a significant slowdown and we may find ourselves with growth rates close to zero,” Luis de Guindos said at a conference, according to Reuters.

Economic output has been suffering due to soaring energy costs and the loss of Russian natural gas, which has raised the risk of energy rationing during the upcoming heating season. Elevated energy prices propelled euro area annual inflation to 9.1% in August, and are expected to drive it up to 9.6% this month, a record high for the region.

The ECB raised interest rates earlier this month by an unprecedented 75 basis points, mere weeks after a 50 basis-point move in order to fight inflation. The regulator said more rate hikes are coming, with analysts expecting another rate move in October, with more increases at every meeting through next spring.

De Guindos did not disclose how aggressive these upcoming moves will be, noting only that they will be “data-dependent” and stressing that inflationary pressures have significantly increased in recent months.

Last week, the official said the ECB will need to continue taking steps to battle inflation, as the economic slowdown is not enough to curb consumer prices.

Markets believe that the slowdown of the economy would reduce inflation by itself. Actually, this is… not right. Monetary policy has to make a contribution,” he said last week.

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