COLOGNE, Germany, Sept 21 (Reuters) – The euro zone may suffer a recession over the winter as risks to the growth outlook are intensifying, but even that is not enough to reduce inflation without further rate hikes, European Central Bank Vice President Luis de Guindos said on Wednesday.
Growth has been suffering due to high energy costs and a loss of Russian gas, raising the risk of energy rationing over the winter while households and businesses take a financial hit from high costs.
“Markets believe that the slowdown of the economy would reduce inflation by itself,” de Guindos told a conference. “Actually, this is… not right. Monetary policy has to make a contribution.”
The ECB promised rate hikes at each of its coming meetings and markets see the deposit rate exceeding 2.5% by next spring, jumping from its current 0.75% level.
De Guindos added that recent economic data point to a substantial slowdown of the economy, and risks to the ECB’s projection of stagnating growth in the winter months were skewed to the downside.
Inflation is “very, very” high right now, De Guindos said, and the potential prolongation of Russia’s war in Ukraine risked keeping this rate uncomfortably high for longer.
Price growth hit 9.1% last month and was seen inching up over the coming months before a slow decline that will still keep it above the ECB’s 2% target through 2024.
(Reporting by Balazs Koranyi; Editing by Francesco Canepa and Editing by Jan Harvey)
Photo: Vice President of the European Central Bank (ECB) Luis de Guindos. EPA-EFE/ARMANDO BABANI