2023-10-02 11:44:50
The vice president of the European Central Bank and former Spanish Minister of Economy, Industry and Competitiveness, Luis de Guindoshas stated that “the positive contribution to the fall in inflation is not going to be as important, it is not going to be as intense, nor as deep as what happened in the last two decades”, although “in the coming months its deceleration”.
He has also pointed to a “economic stagnation” for the second half of the year with “clearly downward risks”, with growth “very, very moderate, close to around 0%”.
The vice president of the ECB took part this Monday in the XV Business Forum of the Diario Vasco at the newspaper’s headquarters in San Sebastián.
For Guindos, The biggest risks are in commercial real estate with falling prices in many countries.
De Guindos has pointed out that the latest ECB forecasts indicate lower growth in the economy and somewhat more inflation in the year 23 and 24. “We see growth for this year as very moderate, at 0.7 percent in the euro and in the second part of the year we are practically expecting a stagnation of the economic situation,” he noted.
“The reasons are the effect of past inflation on consumption in Europe, i.e. has reduced the purchasing power of families; the lower growth of the world economy, China has a lot to do with it,” with its “internal debt crisis and the real estate situation is subtracting economic growth.”
He has indicated that the ECB has “slightly increased the growth projection (of inflation) due to the evolution of the price of oil, which is currently rising and is approaching 100 dollars a barrel; the depreciation of the euro and unit labor costs” .
To this he added that underlying inflation “will continue to be relatively high, but most of its indicators, in the medium term, show that it is slowing down.” De Guindos stressed that “general inflation has fallen quite a bit” and thus, he recalled that “practically a year ago inflation was above 10% in Europe and the latest indicator we have, which came out last Friday, is that is slightly above 4%.”
“The underlying is somewhat more stable, but it is also beginning to slow down, that is, the underlying elements, I repeat, are positive,” he reiterated.
Job creation slows down
Regarding the labor market, he has indicated that there is “a slowdown in job creation, but, and this is important, with growth.” In addition, he pointed out that “productivity is not growing, that is, it is slowing down in some way” and “unit labor costs in the euro zone are growing.” De Guindos has stressed that this is “one of the biggest concerns from the point of view of inflation.”
On the other hand, he expects that “the improvement in business margins in the euro zone in 2022 will absorb part of the increase in unit labor costs”, which “will somehow have a positive, moderating effect on inflation.” .
De Guindos has referred to the increase in interest rates which, in his opinion, if maintained over time as they are, will make a “substantial contribution” to the objective of “convergence of inflation towards 2%.” “From there what we are going to do is in some way look at the evolution of the data,” because “there is a high level of economic uncertainty.”
The situation of European banking
Regarding the situation of European banks, he maintained that “it has a high level of capital and liquidity” and “its profitability has greatly improved”, with the average being “above 10%”, as a consequence of “the expansion of margins derived from the increase in interest rates”.
However, he pointed out that, according to ECB calculations, “the cost of capital for European banks, on average, is close to 14%”, due to the increase in interest rates, because “it is considered that there is a slowdown economic” in Europe, which will cause “an increase in provisions”, and “because the cost of financing for banks will also rise”.
To this we must add, as he said, “uncertainties” introduced by the “discussions” and decisions in some countries in relation to the issue of the bank tax. Regarding this tax, he stressed that the opinion of the ECB is “clear” and involves “avoiding it from affecting the granting of credit and the solvency of banks”, although its reports in this area “are not non-binding, and ultimately countries are sovereign.
In any case, he has defended that the liquidity position of European banks at the moment is “relatively comfortable”, with a “good situation on average”. “What has surprised us supervisors and regulators has been the speed with which a bank can be emptied,” he acknowledged.
In this sense, he pointed out that online banking, in combination with social networks, “which sometimes incorrectly amplify the noise”, can lead to a “much faster” withdrawal of deposits. For this reason, the stress tests are paying “more attention to the liquidity of the banks and how they could cope, if applicable, with a situation of withdrawal of liabilities, withdrawal of deposits, derived from a panic situation” .
On the other hand, when asked when banks are going to begin to remunerate deposits to a greater extent, De Guindos pointed out that “they are already doing it”, with “rates more in line with what our monetary policy is.”
Questions about commercial real estate
On the other hand, he has indicated that the ECB’s biggest “doubts” about financial stability are limited to commercial real estate, since there are “a significant drop in prices, very intense in some countries”, to which it is exposed, above all, to the non-banking financial system, the real estate investment funds, to which it has recommended “an important macroprudential policy” like that of the banks.
Asked about a possible bankruptcy in the economy, De Guindos considered the evolution of the labor market “positive”, since “families maintain their jobs”, and reiterated that “the main contribution” that the ECB can make to avoid it is ” try to reduce inflation as quickly as possible.
Unitary fiscal policy
On the other hand, regarding the measures of the governments of the European Union to face the current economic situation, De Guindos has expressed the opinion that there have been four years “in which the governments have practically had no fiscal rules.”
“At the moment, in Europe, finance ministers are discussing new fiscal rules, there is a proposal from the Commission and a relatively deep division between countries,” he noted, while trusting that “there will be an agreement.” and arrive “before the end of the year.” “If not, we would return to the rules of the Stability and Growth Pact, which are unrealistic,” she added.
#Guindos #predicts #fall #inflation #intense #anticipates #economic #stagnation #idealistanews