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Rising prices threaten eurozone recovery, economists warn

The economic risk of the eurozone could be exacerbated if strong inflation erodes consumer spending and forces the European Central Bank to withdraw its stimulants more quickly than planned, according to a Financial Times survey by economists.

More than 40 percent of the 38 economists surveyed by FT recognized inflation as a major threat to the growth of the 19 single-currency exchanges – making it a major risk factor for 2022 along with the epidemic.

“Inflation will eat up pay, reduce demand,” said Jesper Rangvid, a professor of economics at Copenhagen Business School, adding that the ECB should also address the risk of inflation by raising prices, to address the problem. [economic] to climb “.

ECB price he replied In the wake of a sharp rise in inflation earlier this month announcing its € 1.85tn strike action could halt the purchase of a bond in March as part of a “gradual” reduction in its volume reduction measures.

Inflation has risen sharply this year as the eurozone economy soared due to the outbreak of the plague, job restrictions were lifted and access was difficult to meet with demand, rising electricity prices and creating a shortage of weapons. Consumer price growth in the bloc reached high profile and 4.9 percent in November.

Like many central banks, in the ECB has been amazed at the persistence of inflation. This month saw a sharp rise in eurozone prices to 2.6 percent in 2021 and 3.2 percent in 2022 – both above 2 percent.

“Our economic outlook is staggering and rising in inflation,” said Katharina Utermöhl, a European economist at Allianz. “Given the rise in inflation which is set to remain above 2022, then the ECB needs to adjust its policy more abruptly than we think here which could undermine the real economy and financial concerns.”

How did last year’s forecast turn out?

Not bad, but not brave enough. Encouraged by the introduction of the coronavirus vaccine, economists interviewed FT he predicted The eurozone economy will return sharply with 4.3 percent growth this year. They were very nervous: The ECB estimates that the eurozone economy grew by 5.1 percent in 2021, the fastest growing for many years.

The prophets also had no hope for many other prophecies. More than half predicted that unemployment would rise by more than 10 percent for the first time in more than four years; instead it returned to its original plague level of 7.3%.

Their main need was rising prices. On average they estimate that it is only 1 percent this year, but it has risen much higher than the ECB target of 2 percent.

Economists – who were asked by FT before the ECB to change its forecast this month – almost predicted that eurozone inflation would be 2.7 percent in 2022 and 1.9 percent in 2023. Their forecast was below next year’s ECB but was higher than the central bank had predicted. that inflation will drop to 1.8 percent in 2023.

“Rising electricity prices represent a major risk factor,” said Fabio Balboni, an eurozone economist at HSBC. “[By] eating into family purchasing power, we have estimated that it could cut 0.5 percent from the GDP level over the next few levels “which would put the ECB in a difficult position”.

Manufacturer prices rose 21.9 percent year-on-year to October, the fastest pace since the euro was formed twenty years ago. This was largely due to the rise in electricity prices by 62.5 per cent, but despite the fact that prices for factories continued to rise by 8.9 per cent.

“Rising prices are a big problem [than the pandemic]”” said Nicholas Bennenbroek, an international economist at Wells Fargo.

Yet about half of the economists surveyed thought that there was still a significant economic risk from various types of coronavirus.

Economists predict that the eurozone economy will grow by 4 percent next year, below 4.2 percent of the ECB.

André Sapir, a professor at the Université libre de Bruxelles, said the bloc’s biggest problem was “finding the right balance of capital, financial and economic resources, so that it could start again without uncontrolled capital and inflation”.

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