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ECB: Schnabel, recession not ruled out, but inflation is the priority

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The ECB sees a worsening picture for growth in the euro area, and “I would not rule out the possibility that we are entering a technical recession”. But inflation worries more: “the concerns we had in July have not been alleviated”. I says itsabel Schnabel, of the Executive Committee of the ECB, referring to the decision to raise rates by half a point in July and the prospects for the meeting on 8 September. “If you look at any of the underlying inflation measures, they are rising further and are at an all-time high,” Schnabel said in an interview with Reuters posted on the ECB’s website.

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Schnabel explains that “even if we went into recession, inflationary pressures would be quite unlikely to subside on their own. What we are seeing is a supply shock that is slowing growth and increasing inflationary pressures at the same time,” but ” growth is probably not enough to weaken inflation, although it reduces price pressures through weaker demand. ” With an inflation rate that rose to 8.9% in July, according to the German exponent of the ECB directorate, not even a new increase of half a percentage point can be ruled out: “In July we decided on a rise of 50 basis points in light of the the inflation outlook. At the moment I don’t think these outlooks have fundamentally changed. “

Finally, Schnabel entered into the merits of the reinvestments of the Pepp pandemic program, which in recent weeks have lowered the spread after being activated as a “first line of defense” from the risks of fragmentation in the euro area. “The use of this tool, like any other, must be proportionate. This implies that it should only be activated to the extent necessary. At the start of the pandemic we saw that brief interventions may be enough to stabilize the markets.”

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Source: Ansa

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