He defends that a sufficiently restrictive monetary policy is essential for inflation to return to the 2% target


The prospects for the euro zone economy have weakened in recent months more intensely than what was contemplated by the European Central Bank (ECB) in its latest macroeconomic projections, as admitted by the institution’s German executive, Isabel Schnabel.

In a conference delivered this Friday, the German company has highlighted the constant deterioration of economic sentiment, with a fall in manufacturing activity to levels more typical of deep recessions, which has gradually spread to the services sector, while it is also expected that the fiscal policy becomes more restrictive as governments embark on gradual fiscal consolidation.

“Taken together, these events suggest that growth prospects will be weaker than expected in the base scenario of the June Eurosystem staff projections,” Schnabel warned.

However, for the ECB executive, at the same time, there are signs that the euro zone economy “may not be on the verge of a deep or prolonged recession”, pointing to the encouraging sign represented by the improvement in confidence in consumers compared to previous months, “even if the recovery has stalled lately.”

In any case, after more than a year of significant monetary adjustment, Schnabel stressed that the outlook for the euro area remains highly uncertain, as activity has visibly moderated and indicators also suggest weakness for the future, while that there are important pockets of resilience, especially in the labor market.

Also, while headline inflation has eased, mainly thanks to the disappearance of earlier supply-side shocks, underlying price pressures remain stubbornly high, and domestic factors are now the main drivers of inflation across the board. eurozone.

“Therefore, a sufficiently restrictive monetary policy is essential for inflation to return to our 2% target in a timely manner,” he defended.

In this sense, for Schnabel, this uncertainty about the rate of disinflation supports the data-dependent approach adopted by the Governing Council of the ECB with the aim of taking into account and responding to the way in which the economy reacts to the current cycle. of rate hikes in the euro area, the most intense in the historical series. “The lack of a historical precedent means we can rely less on past experience,” she pointed out.

Thus, with this data-driven approach, you cannot predict where the top rate will be or how long rates will have to stay at restrictive levels.

“We also cannot commit to future action, which means we cannot offset the need for further monetary policy tightening today by promising to keep rates at a certain level for longer.”