September 25, 2020

The ECB improves its economic forecast for the Eurozone by seven tenths


Correspondent in Berlin

Updated:

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The ECB improves the economic forecast of GDP drop in the Eurozone for this year to -8%, from -8.7% previously. The update of its inflation and growth forecasts for the next three years contemplates a “strong rebound in economic activity”, although “the level of economic activity is well below pre-pandemic levels.”

The fall in GDP forecast for this year will be -8%, instead of the -8.7% that advanced last June in its base scenario. Also, in 2021 the ECB expects the economy to grow 5.2%, two tenths more than expected in June, while in 2022 growth will be 3.2%, one tenth below the 3.3% projected in June.

In any case, the President of the ECB, Christine Lagarde, has clarified in the press conference that a wide degree of monetary stimulus is needed to support the growth of the euro zone. Activity in the manufacturing sector, he noted as an example, has continued to improve, but the boom in the service sector has recently slowed. “The strength of the recovery is surrounded by significant uncertainty and remains highly dependent on the evolution of the pandemic and the success of the policies applied,” he said. Domestic demand in the euro area has registered a “Significant recovery from low levels”, although the uncertainty is noted in consumer spending and business investments, according to the president of the ECB

Regarding inflation, no substantial improvements are perceived. The CPI forecast for this year remains at the expected 0.3%, while for next year it is expected to reach 1%, two tenths above what was predicted in June but immune to the effects of the extremely intense monetary policy and far from the 2% that the ECB’s mandate indicates as a target. For 2022 the projection of 1.3% is also maintained, which does not place in a deflationary trend scenario.

Regarding the deflation that the euro zone experienced last month for the first time in four years, Lagarde has assured that it is due to negative energy prices that in his view were caused by the conditions imposed by the pandemic. It has also indicated that, according to the data that you have just presented, there is no “risk of deflation in the euro zone”, Despite the fact that it has acknowledged that prices will continue to fall in the coming months and inflation will not be registered in the euro area as a whole until “early” 2021.

On the recent decision of the Federal Reserve Lagarde, who has revised his strategy to allow inflation to exceed 2%, has simply said: “We have taken note.”

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