The European Central Bank (ECB) anticipated this Thursday that the outlook for growth in the eurozone it remains under pressure, but the risks are now “less pronounced” compared to December.
“The news about expectations for the global economy, the agreement on relations between the European Union and the United Kingdom and the start of the vaccination campaign are encouraging, but the pandemic and its implications for economic and financial conditions remain sources of risk, ”said ECB President Christine Lagarde, this Thursday, during the press conference that followed the announcement of the decision on monetary policy.
“Overall, the risks on the outlook of economic growth in the eurozone remain under pressure, but less pronounced ”, stressed the president of the central bank.
The Board of Governors decided this Thursday keep monetary policy unchanged after the recalibration process which, in December 2020, reinforced the Pandemic Emergency Purchase Program by 500 billion euros, to a total of 1,85 billion euros, and extended the program term until March 2022, compared to the previous term, of June 2021.
Christine Lagarde explained that the economic projections made by the staff of the ECB in December 2020 remain “valid”, so the Board of Governors has decided to keep monetary policy unchanged.
“Economic data, surveys and high-frequency indicators suggest that the resurgence of the pandemic and the associated intensification of the containment measures will have caused activity to fall in the fourth quarter of 2020 and will have a bearing on activity in the first quarter of this year. ”, Said the ECB president, stressing that this analysis is“ in line ”with the base scenario of the economic projections of December.
Among the identified economic risks, Lagarde said that the services sector is suffering more impact with the new measures to restrict social and industrial mobility. And while budgetary policy measures by Member State governments continue to support families and businesses, “consumers remain cautious” due to the pandemic. In addition, “the deterioration of companies' balance sheets and uncertainty regarding the outlook are weighing on investment ”.
The ECB president also addressed inflation in the euro zone, which in December stood at -0,3%. However, it is expected to “probably rise in the coming months”, due to energy prices and also due to the end of the temporary VAT reduction in Germany.
However, inflation is expected to remain under pressure, due to “weak demand”, especially in the tourism sectors and those sectors that depend on air travel, and also because of pressure on wages and the appreciation of the euro against other currencies.
"As soon as the impact of the pandemic disappears, the recovery in demand, supported by accommodative budgetary and monetary policies, will boost inflation in the medium term," said Christine Lagarde.
The ECB has a mandate to put the inflation rate close, but below 2%.