Written by 4:08 am Europe Economy

ECB expects economic activity to slow,interest rates to increase further

The European Central Bank (ECB) expects economic activity in
Europe to slow down substantially in the coming months, due to
skyrocketing prices, decreased spending power and overall
uncertainty, ECB President Christine Lagarde said, Trend reports citing Xinhua.

Addressing a hearing of the European Parliament’s Economic and
Monetary Affairs Committee, Lagarde said: “We expect to raise
interest rates further over the next several meetings, to dampen
demand and guard against the risk of a persistent upward shift in
inflation expectations.”

“Our future policy rate decisions will continue to be
data-dependent and follow a meeting-by-meeting approach,” she
added.

The euro area economy grew by 0.8 percent in the second quarter
of 2022, Lagarde explained, mainly owing to strong consumer
spending on services as the economy reopened.

However, growth is expected to slow substantially. This is
mainly due to high inflation, slower demand for services, a
weakening global demand and worsening terms of trade. Falling
household and business confidence due to a high level of
uncertainty are also contributing factors.

The Russia-Ukraine conflict has “cast a shadow over Europe” with
economic consequences, Lagarde said. The “outlook is darkening,”
while inflation remains “far too high” and is “likely to stay above
our target for an extended period.”

“The risks to the inflation outlook are primarily on the upside,
mainly reflecting the possibility of further major disruptions in
energy supplies,” the ECB chief said. “While these risk factors are
the same for growth, their effect would be the opposite: they would
increase inflation but reduce growth.”

These developments have led to a downward revision of the latest
ECB staff projections for economic growth for the remainder of the
current year, and throughout 2023. Staff now expect the economy to
grow by 3.1 percent in 2022, by 0.9 percent in 2023 and 1.9 percent
in 2024.

Lagarde said it is “essential” that “temporary and targeted”
fiscal support is used to shield households from the impact of
higher prices, as this limits the risk of fueling inflationary
pressures.

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