Euro zone facing weak growth, possible recession, ECB’s de Guindos says By Reuters

© Reuters. European Central Financial institution (ECB) Vice-President Luis de Guindos arrives on the Presidential Palace for a gathering with Cyprus President Nikos Christodoulides in Nicosia, Cyprus, October 4, 2023. REUTERS/Yiannis Kourtoglou/File Photograph

FRANKFURT (Reuters) – The euro zone might have been in recession final quarter and prospects stay weak, European Central Financial institution Vice President Luis de Guindos stated on Wednesday, including that the current speedy slowdown in inflation is more likely to take a pause now.

Euro zone development has been hovering on both measurement of zero for many of 2023 and solely a gentle choose up is seen this 12 months, serving to to chill inflation, which has overshot the ECB’s goal for years and compelled policymakers to boost rates of interest to document highs final 12 months.

“Gentle indicators level to an financial contraction in December too, confirming the opportunity of a technical recession within the second half of 2023 and weak prospects for the close to time period,” de Guindos stated in Madrid.

“Incoming information point out that the long run stays unsure, and the prospects tilted to the draw back,” he stated.

De Guindos stated that financial weak spot was broad-based, with development and manufacturing hit notably onerous and companies more likely to observe within the coming months.

On coverage, de Guindos provided no new message, merely repeating the ECB’s steering {that a} 4% deposit price, maintained for a “sufficiently lengthy period”, will assist bargain development again to the ECB’s 2% goal.

Buyers see at the very least 5 price cuts this 12 months with the primary transfer coming in March or April, a timeline a number of policymakers have known as extreme given lingering value pressures.

Inflation fell quickly by way of most of 2023 however jumped again to 2.9% final month, totally on technical components, and will maintain round this stage for a while.

“Optimistic power base results will kick in and energy-related compensatory measures are set to run out, resulting in a transitory pick-up in inflation,” de Guindos stated.

ECB projections see inflation again at goal solely subsequent 12 months however a bunch of personal forecasters disagree and suppose the ECB is underestimating disinflation a lot the identical manner it missed inflation on the best way up.