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De Guindos Anticipates That ECB May Improve Its Economic Forecasts For Eurozone

The Governing Council of the European Central Bank ( ECB ) will meet again in just over two weeks, on September 9 . As every quarter, it will announce its economic forecasts for the Eurozone and, as Luis de Guindos has anticipated, it could revise them upwards.

” Every time we have updated them, it has been for the better and this can happen again, ” the vice president of the organization said on Tuesday, according to Reuters . In its latest update, announced in June, the entity forecast gross domestic product (GDP) growth this year of 4.6% and 4.7% in 2022 .

” All the leading indicators for the third and fourth quarters are positive, ” De Guindos said during his speech at an event organized by the Diario de Navarra , where he expressed his confidence that the ECB will revise its growth forecasts upwards in September.

Inflation, about 3%
On the other hand, the also former Spanish Minister of Economy has reiterated that the recent rise in inflation is mainly due to base effects, underlining that “any comparison with 2020 is distorted.”

In this way, De Guindos has anticipated that ” inflation in Europe will continue to accelerate ” and by the end of the year it could be around 3%. However, he is confident that from next year, as base effects wear off, there may be a significant slowdown.

According to the latest ECB estimates, inflation will be 1.9% in 2021 and 1.5% next year. However, last month it already exceeded the ‘symbolic’ 2%, reaching its highest since 2018 .

The ECB will keep rates low or even negative for longer to bring inflation to 2%
The ECB will keep rates low for longer to bring inflation to 2%

However, the vice president of the ECB has warned that “it is essential that there are no second-round effects and indexation”, which could extend the effect of price increases over time.

In any case, De Guindos has stressed that, despite the change in the definition of price stability by the ECB, the institution does not propose to apply a strategy to compensate for deviations in inflation , as has been announced by the United States Federal Reserve (Fed).

“[Inflation] may be above 2% for some time, but not to compensate for the fact that it has been below. It is not an average inflation as in the case of the Fed, ” explained the Spanish economist.

Gradual withdrawal from PEPP
In his speech, Luis de Guindos has also opted for a withdrawal of the emergency purchase program for the pandemic (known as PEPP) that is gradual and in step with the evolution of economic activity, in order to sustain only the business fabric that adds value and, in turn, avoid cliff effects.

“If there is a normalization of economic activity in parallel, there must be a normalization of fiscal and monetary stimuli,” he defended. ” You cannot go from having an important aid to zero because that would be a leap that could abort your recovery,” he explained. And he has clarified that, although it is a personal bet and not of the ECB as an entity, he considers that it is shared.

In the same way, he has commented, “you cannot maintain these extraordinary stimuli more than necessary because if you cannot be helping companies artificially that only survive as a result of these aid and not thanks to their economic activity”, which is revealed as “a misallocation of resources”.

“A debt crisis that would have been terrifying has been avoided”

In his opinion, this program “has worked”, since “a debt crisis that would have been terrifying” has been avoided, something “fundamental” because the public debt market determines the conditions for all credit markets, as well. for the corporate sector, private companies and families, and the spreads have even been reduced.

Although he has recognized that there is the possibility of extending the duration of this program, he has insisted that “it is specific to fight the pandemic” and, therefore, “it is temporary depending on the crisis generated by covid-19 and the “brutal impact” it has had on economic activity.

Regarding the possible modifications, he has indicated that they make decisions quarter by quarter and, therefore, they have not yet discussed the alternatives to this plan.

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