The ECB rules out a crisis like the one in 2008, even with a moderate recession in the euro zone
The economy of the euro zone faces a slowdown after the strong rebound in growth experienced, that it could even become a “moderate recession”, but far from a crisis scenario like that of 2008, according to the chief economist of the European Central Bank (ECB), the Irishman Philip Lane.
“All the analyzes point to a slowdown in the economy,” Lane acknowledged during an interview with RTVE, where he stressed that if they were to register “a few weeks of recession, that shouldn’t be overly dramatized,” since, in his opinion, what is not expected “are circumstances like those of 2008”.
In this way, Lane has recalled that, compared to the situation during the pandemic two years ago, the eurozone has had a very significant recovery, so a slowdown now in the economy “is different from entering a phase of pessimism.”
In this sense, the Irish economist has argued that, unlike what happened during the crisis that led to the Great Recession, the banking system in the eurozone in general “is in good shape”, something that has extended to households and companies, much less indebted than then.
“We don’t see the ingredients for a long recession. The framework will be more of a slowdown, which may imply a moderate recession,” he added, noting that he expects a stabilization of the economy with normal growth rates.
Likewise, Lane explained that this slowdown in the rate of expansion of the euro zone after the strong rebound experienced as the restrictions due to the pandemic were lifted will in turn serve as a brake on inflationary pressures, which will continue to be fed, on the contrary, due to the uncertainty related to the war in Ukraine and the rise in energy prices.
“The price of gas has continued to rise and that has a significant impact. On the other hand, we anticipate that en the second half of the year there will be some reduction in the level of demand, as the slowdown helps reduce inflationary pressures“, he exposed.
In this way, as he pointed out this Monday during a conference in Barcelona, Lane has defended the importance of the central bank having a strategy for normalizing interest rates over time. “Step by step and not all at once, so that families, companies and the financial system can adjust”has pointed.
In his speech, the chief economist of the ECB announced that the next September meeting of the Governing Council of the institution “will be the beginning of a new stage” in the normalization of the monetary policy of the euro zone with a “meeting by meeting” approach to setting interest rates.
In this sense, the Irish economist defended the importance of “a steady pace, that is neither too slow nor too fast”in the normalization of monetary policy.
In particular, he considered less likely that the same cumulative rate hike will generate more adverse effects on price stability if it is implemented in the form of “a multi-step calibrated series rather than a smaller number of larger rate increases”.
Likewise, Lane pointed out that a multi-step adjustment path towards the terminal interest rate also makes it easy to make mid-course corrections if circumstances change.