Europe’s economy is “de facto stagnant,” says the ECB’s Panetta


European Central Bank executive board member Fabio Panetta said economic expansion has almost ground to a halt in the euro zone and faces another “high cost” as policymakers battle record inflation.

In the ECB’s strongest warning yet about the damage the war is wreaking on Ukraine, Mr Panetta told Italian newspaper La Stampa that the region’s economy is “de facto stagnant”.

“This complicates the decisions the ECB faces, as monetary tightening aimed at curbing inflation would ultimately hamper already flagging growth,” he said.

Comments strike a far more cautious note than some of Mr Panetta’s more hawkish ECB colleagues, who have raised the possibility of interest rates raising from all-time lows from July to counter rising prices.

Asked about that prospect, Mr. Panetta said “it doesn’t make much difference if it’s two or three months earlier or later,” although he added that under the current circumstances, “negative interest rates and net asset purchases may no longer be necessary.”

The next ECB interest rate meetings are on June 8-9 and July 20-21.

Mr Panetta said inflation is being fueled by international factors that monetary policy has limited ability to address. This means that the ECB “cannot tame inflation on its own without incurring high costs for the economy”.

The largest members of the Eurozone are already suffering.

Underscoring the malaise was the slump in German factory orders in March, which fell more-than-expected after the Russian invasion clouded prospects for Europe’s leading economy.

“It would be unwise to act without first seeing the hard figures on Q2 GDP and discuss further action without fully understanding how the economy might perform in the following month,” Mr Panetta said.

Second-quarter GDP data will not be officially released until July 29, although indicators of the state of the economy are available earlier. Europe’s economy is “de facto stagnant,” says the ECB’s Panetta

Fry Electronics Team

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