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ECB's Lagarde pushes back on gloomy forecasts, sticks to recovery outlook

EconomyJan 13, 2021 09:20AM ET
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2/2 © Reuters. FILE PHOTO: European Central Bank President Lagarde addresses the European Parliament in Strasbourg 2/2

By Alessandra Galloni

(Reuters) - European Central Bank President Christine Lagarde pushed back against pessimism on Wednesday, predicting an economic rebound as COVID-19 uncertainty subsides and saying that Europe has all the tools needed to overcome the crisis.

Even with much of the 19-member euro area in lockdown, Lagarde continued to forecast a recovery, provided that economic restrictions can be lifted from the second quarter and the bloc can overcome a "laborious" start to vaccinations.

The ECB last month cut its 2021 growth forecast to 3.9% but increasingly widespread curbs on movement and activity in countries including Germany and France, along with the slow rollout of vaccines, are already challenging that outlook.

"I think our last projections in December are still very clearly plausible," Lagarde said in an interview at the Reuters Next conference. "Our forecast is predicated on lockdown measures until the end of the first quarter."

The ECB said on Dec. 10 that its forecasts assumed "sufficient" levels of herd immunity before the end of 2021.

"What would be a concern would be that after the end of March those member states still need to have lockdown measures and if, for instance, vaccination programmes were slowed down," Lagarde added.

'ATTENTIVE'

The euro's persistent rise against the dollar also risks dampening growth and inflation, but Lagarde maintained the ECB's cautious tone despite big moves around the turn of the year.

"We are very attentive, we will continue being extremely attentive to the impact on prices that the exchange rates have," she said, adding that the ECB does not target any particular exchange rate level.

Private sector economists are already cutting their growth projections, with Bank of America (NYSE:BAC) now predicting a 2.9% expansion - a full percentage point below its previous forecast.

To support the euro zone, the ECB has already extended ultra-easy policy into 2022, but with borrowing costs at record lows and well into negative territory in some euro zone countries, its remaining stimulus firepower is limited.

Lagarde said the ECB could expand its bond-buying stimulus programme again if needed, but might also refrain from using the entire 1.850 trillion euro ($2.25 trillion) envelope it has earmarked for purchases if the crisis passes.

"If the envelope that we have agreed upon is excessive and we don't need the entire envelope, so be it," she said. "We will buy adequately in order to stick to our goal of favourable financing conditions. If more is needed, we will recalibrate."

Lagarde added that a broad strategy review, due to wrap up around mid-year, will give the ECB a better defined inflation target and must also define its role in tackling climate change.

"It's impacting inflation, financial stability and balance sheets of all, including central banks," Lagarde said of climate change. "We've had 33 (major weather) events over the past year only, the damage of which have exceeded one billion euros."

"If that's not significant, then I need a wake-up call, but I think that the wake-up call is climate change," she added.

Lagarde also pushed back on calls for the bank to publish its new inflation target before its policy review is completed, arguing that a "very large" group within the Governing Council is keen for a single package.

For more coverage from the Reuters Next conference please click here or http://www.reuters.com/business/reuters-next

To watch Reuters Next live, visit https://www.reutersevents.com/events/next/register.php

($1 = 0.8205 euros)

ECB's Lagarde pushes back on gloomy forecasts, sticks to recovery outlook
 

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