The euro-area economy looks set to avoid the six-month downturn that had been expected as recently as late last year, according to European Central Bank Vice President Luis de Guindos.
(Bloomberg) — The euro-area economy looks set to avoid the six-month downturn that had been expected as recently as late last year, according to European Central Bank Vice President Luis de Guindos.
“Growth in the first quarter of the year, according to the leading indicators, is going to be possible,” Guindos told a panel discussion Wednesday in Delphi, Greece. “This is good news, because only in December last year, our baseline was that we could have a technical recession. This is not going to take place.”
While activity in the bloc dipped by 0.1% in the final three months of 2022, recent data signals improving conditions after the energy crisis sparked by Russia’s war in Ukraine eased. Guindos also cited a strong labor market with all-time low unemployment.
ECB officials are parsing such data to determine how high to take interest rates, with a first estimate of first-quarter economic growth due Friday. The outcome of their next meeting, on May 4, remains open as they await figures on prices and bank lending.
Guindos reiterated that core inflation, which strips out volatile components and is closely watched by policymakers, is “much more sticky than headline inflation.”
“Core inflation is sending the correct signal about the medium-term underlying tendencies in terms of inflation,” the ECB vice president said in an ERT TV interview aired late on Wednesday.
Turning to bank lending, Guindos said that the tightening of credit standards seen in the final quarter of 2022 — and the resulting impact on households and companies’ demand for credit — probably continued into in the first three months of this year.
Speaking at the same event in Delphi, Cypriot central-bank chief Constantinos Herodotou highlighted the importance of financing conditions in deciding the next policy steps.
Recent financial-market tensions “may have an additional impact on financing conditions, in addition to our monetary policy, so we need to gauge that and see how it could potentially complement or at least how it contributes to the monetary-policy stance,” he said.
But Herodotou also cautioned that other factors, including rising wages and trade frictions as a result of geopolitics, may contribute to price pressures, so the challenges faced by the ECB “may act in opposite ways.”
(Updates with TV interview comments starting in sixth paragraph)
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