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European Central Bank to take a cautious approach as the economy declines


Sep 13, 2023

Shoppers in the euro area are refraining from spending due to rising inflation, which is impacting their disposable income. Additionally, the manufacturing sector has been experiencing a decline since mid-2022. The European Central Bank (ECB) is expected to maintain interest rates on Thursday as the region’s economic activity is decelerating at a faster pace than anticipated. The debate within the ECB revolves around whether weaker growth will result in lower inflation. Some argue that the weakened growth is supply-driven rather than demand-driven, suggesting that price pressures may be less affected by weaker growth than typically assumed. The August headline inflation was slightly higher than expected at 5.3%, while core inflation fell as anticipated to 5.3% as well, compared to the previous month’s 5.5%. The ECB will release new staff projections on Thursday, which will shed more light on their stance on inflation and growth outlook. Analysts predict revisions to both the ECB’s GDP and inflation forecasts, with expectations of a downgrade in the near-term growth outlook. The uncertain outlook was emphasized by ECB President Christine Lagarde at the Jackson Hole conference, as there have been several shocks in recent years that have had lasting impacts on the economic system and monetary policy transmission. Lagarde stressed the need to make forward-looking decisions while acknowledging that the full effects of those decisions may only be understood afterward.

By Editor

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