(Provides feedback on progress, financial coverage, inflation)
FRANKFURT, Jan 10 (Reuters) – The euro zone could have been in recession final quarter and prospects stay weak, European Central Financial institution Vice President Luis de Guindos mentioned on Wednesday, including that the latest fast slowdown in inflation is prone to take a pause now.
Euro zone progress has been hovering on both dimension of zero for many of 2023 and solely a gentle decide up is seen this yr, serving to to chill inflation, which has overshot the ECB’s goal for years and compelled policymakers to boost rates of interest to report highs final yr.
“Gentle indicators level to an financial contraction in December too, confirming the potential of a technical recession within the second half of 2023 and weak prospects for the close to time period,” de Guindos mentioned in Madrid.
“Incoming knowledge point out that the longer term stays unsure, and the prospects tilted to the draw back,” he mentioned.
De Guindos mentioned that financial weak point was broad-based, with building and manufacturing hit notably arduous and companies prone to observe within the coming months.
On coverage, de Guindos supplied no new message, merely repeating the ECB’s steering {that a} 4% deposit charge, maintained for a “sufficiently lengthy period”, will assist discount progress again to the ECB’s 2% goal.
Traders see at the least 5 charge cuts this yr with the primary transfer coming in March or April, a timeline a number of policymakers have referred to as extreme given lingering worth pressures.
Inflation fell quickly by way of most of 2023 however jumped again to 2.9% final month, totally on technical elements, and will maintain round this stage for a while.
“Constructive power base results will kick in and energy-related compensatory measures are set to run out, resulting in a transitory pick-up in inflation,” de Guindos mentioned.
ECB projections see inflation again at goal solely subsequent yr however a bunch of personal forecasters disagree and assume the ECB is underestimating disinflation a lot the identical method it missed inflation on the way in which up. (Reporting by Balazs Koranyi; Enhancing by Alison Williams and Christina Fincher)
