- European Central Bank President Christine Lagarde also warned that, as the conflict drags on, Europe’s economy could suffer more than feared just a few weeks ago.
- The European Commission’s economic sentiment index dropped to 108.5 in March from a downwardly revised 113.9 in February, while consumer confidence plunged to -18.7 from -8.8.
- Economists polled by Reuters had expected a decline to 109.0 points.
Growth is stalling, confidence is falling, and inflation is rising as a result of Russia’s war in Ukraine, according to data and warnings from officials released today as reported by RTE.
Another recession
Sanctions on Russia following its invasion last month have pushed energy prices to record highs across the continent.
This is sapping confidence and has raised the risk of another recession, even before some states have recovered from a COVID-fuelled downturn.
Germany, the bloc’s biggest economy and one of the most reliant on Russian energy, will be among the hardest hit and the government’s council of economic advisers today more than halved their growth forecast for this year to 1.8%.
“The risk of a recession is substantial,” Volker Wieland, one of the panel’s members said, adding the economy would now take until the third quarter to return to its pre-pandemic size.
The advisers, whose forecasts guide the government in setting fiscal policy, also predicted that German inflation would double to over 6%.
Supply disrupted
As the government triggered an emergency plan for possible gas rationing should supply from Russia be disrupted or stopped, Wieland said Germany should work to end its dependence on Russian energy, possibly through a longer-than-anticipated nuclear energy programme.
This would push up inflation for now but improve the long-term security of the country and the economy’s stability, he said.
European Central Bank President Christine Lagarde also warned that, as the conflict drags on, Europe’s economy could suffer more than feared just a few weeks ago.
“The longer the war lasts, the higher the economic costs will be and the greater the likelihood we end up in more adverse scenarios,” she said in a speech.
Christine Lagarde said households were already becoming more pessimistic and businesses could soon be postponing investment.
High inflations
Her warning was underlined by a sentiment indicator that showed the war had sent consumer confidence in the eurozone plummeting and inflation expectations to record highs.
The European Commission’s economic sentiment index dropped to 108.5 in March from a downwardly revised 113.9 in February, while consumer confidence plunged to -18.7 from -8.8.
The biggest hit to confidence came from inflation, which is sapping consumer spending power, even as governments quickly roll out subsidies to ease some of the pain.
Stagnating growth coupled with high inflation – stagflation in economic jargon – leaves Lagarde’s ECB in a dilemma.
To mitigate the risk, Lagarde promised to move only in small increments, without making longer-term commitments.
High selling price
“Gradualism means that we will move carefully and adjust our policy as we receive feedback on our actions,” she said.
This policy dilemma could in turn divide the ECB’s rate-setting Governing Council even more, as conservatives are already calling for a hike to combat high inflation.
Economists polled by Reuters had expected a decline to 109.0 points.
Only the services sector was more optimistic with the reading improving to 14.4 from 12.9, data showed.
Selling price expectations among manufacturers rose to a record high for the survey going back to 2000, of 58.1 in March from 49.8 in February.
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Source: RTE
