“The Russia-Ukraine war will have a significant impact on economic activity and inflation through higher energy and commodity prices, disruption to international trade and weakening confidence,” ECB President Christine Lagarde said after the interest rate meeting. The extent of this negative will depend on “how the conflict develops”.
Two percent would be ideal
In the medium term, the ECB is aiming for two percent inflation as the ideal value for the economy. From their point of view, this level offers the most advantages for the euro area. Most recently, however, the rate of inflation had continued to overshoot the target mark due to rapidly rising energy prices. In February, it marked a new record high of 5.8 percent. Some economists are assuming that the Ukraine war will cause energy prices to rise even further and that an inflation rate of over six percent is to be expected in March.
The ECB economists predict economic growth of only 3.7 percent for the monetary union for the current year. In December they had forecast an increase of 4.2 percent. For 2023, they are now expecting an increase in gross domestic product (GDP) of 2.8 (previously: 2.9) percent. A further 1.6 percent is expected for 2024. “The economic recovery is being helped by the fading impact of the omicron variant of the coronavirus,” Lagarde said. Delivery bottlenecks have eased recently, while the labor market has continued to improve.
Source: Nachrichten
