The ECB rules out a crisis like the one in 2008, even with a moderate recession
The euro zone economy is facing a slowdown after the strong rebound in growth experienced, that could even become a “moderate recession”, but far from a crisis scenario like the one in 2008, according to the chief economist of the European Central Bank (ECB), the Irish Phillip Lane.
“All the analyzes point to a slowdown in the economy”, Lane acknowledged during an interview with RTVE, where he stressed that if “a few weeks of recession were to be recorded, that should not be too dramatized”, since, in his opinionwhat is not expected “are circumstances like those of 2008”.
In this way, Lane recalled that, compared to the situation during the pandemic two years agothe eurozone has had a very significant recoveryso 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 eurozone banking system in general “is in good shape”, something that has extended to households and companies, much less indebted than then.
A slowdown and a moderate recession
“We do not 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 restrictions were lifted due to the pandemic will in turn serve to curb inflationary pressures, which will continue to be fueled, on the contrary, by the uncertainty related to the war in Ukraine and the escalation of energy prices.
“The price of gas has continued to rise and that has a significant impact. On the other hand,or, we anticipate that in the second half of the year there will be some reduction in the level of demandsince the slowdown helps to reduce inflationary pressures,” he explained.
In this way, as he pointed out this Monday during a conference in Barcelona, Lane has defended the importance of the central bank has an interest rate normalization strategy over time. “Step by step and not all at once, so that families, companies and the financial system can adjust,” she pointed out.
In his speech, the chief economist of the ECB announced that the next meeting in September of the Governing Council of the institution “will be the beginning of a new stage” in the normalization of monetary policy in the euro zone with a “meeting by meeting” approach to setting interest rates.
In this sense, the Irish economist defended the importance of “a constant pace, which 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 for price stability if 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 corrections midway if circumstances change.