EU central bank warns ‘gloomy outlook’ — RT World News
The ECB cut its growth forecast, raising interest rates even as it expected inflation to rise further
Europe faces weaker-than-expected economic growth as inflation continues to climb, European Central Bank chief Christine Lagarde revealed on Monday, explaining that the ECB had raised interest rates by 75 points basis to try to control the price spike.
Speaking to the European Parliament’s Economic and Monetary Affairs Committee on Monday, Lagarde admitted that « inflation remains far too high and is expected to remain above our target for an extended period.”
The former head of the IMF warned that the « economic consequences for the euro area » of « Russia’s unjustified war of aggression against Ukrainehad worsened further since June, a reference to Western sanctions on Russian oil and gas, which have sent fuel prices skyrocketing.
« The outlook darkens, » she says.
As the eurozone economy grew 0.8% in the second quarter, Lagarde said the ECB expects activity to “slow down significantly” over the rest of 2022, to a total of 3.1% for the year and just 0.9% for all of 2023. improving slightly in 2024, with growth projected at 1.9%, she said.
Much of the economic growth this quarter is due to “strong consumer spendingdriven by the reopening of Covid-shut down industries like tourism, Lagarde said, while noting a drop in global demand due to what she called the « deterioration in the terms of trade.”
High inflation isreinforced by gas supply disruptions“, she said, adding that”uncertainty » and « decline in household and business confidencealso contributed to the grim predictions.
Inflation reached 9.1% in August, driven by energy and food prices. The ECB raised its inflation projections accordingly, setting 8.1% for 2022, 5.5% for 2023 and 2.3% for 2024, with Lagarde again pointing the finger « major disruptions in the energy supply.”
The central bank’s recent 75 basis point hike earlier this month was only the second hike in 11 years, after adding 50 basis points in July. Lagarde said the increase would be « dampen demand« but make sure »inflation expectations remain well anchored.”
Lagarde admitted that the situation should “get worse before it gets betterwhen it comes to high energy and food costs — the most important issues for two out of three Europeans today, according to a Eurobarometer survey.
She, however, urged governments to ensure that budgetary support for « the most vulnerable households » has been « temporary and targeted« so as not to exacerbate »inflationary pressures.”