Lagarde Warns That Short Term Economic Risks Persist

Lagarde Warns That Short Term Economic Risks Persist

The president of the European Central Bank ( ECB ), Christine Lagarde , affirmed this Thursday that the short-term downside risks for the European economy persist due to the covid-19 pandemic and that, in this context, it remains “essential” to maintain favorable financing conditions for recovery

Largarde recalled that, for this reason, the Governing Council of the ECB decided last week to “significantly” increase the rate of purchase of bonds within its emergency program due to the pandemic in the second quarter and reiterated that its endowment, which remained unchanged at € 1.85 trillion, could be “recalibrated” if necessary.

“The risks surrounding the growth outlook for the euro area in the medium term have become more balanced due to the better prospects for the global economy and the progress of vaccination campaigns,” he said in an appearance before the Economy Commission of the Eurocamara.

But he added that “downside risks persist in the short term, linked above all to the expansion of virus mutations (of covid-19) and the implications of the pandemic for the economy and financing conditions.” Lagarde also pointed out that, although inflation will rise in the coming months , it will be due to “temporary” and “transitory” factors, and long-term projections suggest that inflation will remain at “weak levels.”

“In this context, preserving favorable financing conditions during the pandemic remains essential to reduce uncertainty and boost confidence, thereby supporting economic activity and safeguarding price stability in the medium term,” he said.

The president of the ECB insisted that, although they consider that they have fulfilled what they said they would do with the pandemic emergency asset purchase program (PEPP), it has fulfilled its mission, “there is no room for complacency.”

Lagarde explained that the Governing Council’s decision to accelerate debt purchases in the second quarter responded to “an increase in yields that is ahead of the expected economic recovery.” “We believe that 2021 will be the year of recovery , but we do not see it happening until the second half of 2021 and any performance increase that acts as a brake is undesirable,” Lagarde said.

According to the former French minister, the increase in the execution speed of the program will be visible when viewed in “longer time intervals”, since the weekly purchase records “will continue to be distorted by noise factors in the medium term”, such as occasional bulky amortizations. The President of the ECB recalled that, in order to preserve favorable financing conditions, the institution analyzes financing conditions throughout the chain and the impact they would have on credit and, consequently, the economy, price stability and the inflation.

“We are trying to avoid that yields are ahead of the evolution of the economy,” he said. On the other hand, Lagarde insisted that national fiscal policies should continue to provide timely support to companies and households most exposed to the pandemic, although these measures “should be, as much as possible, temporary and specific” to support a rapid Recovery.

In this sense, he urged that the countries ratify “in the coming weeks” the legislation that will allow the Commission to issue debt so that the European Union recovery fund -which will disburse 750,000 million euros- can definitively begin to operate. your recovery plans.