It is possible that the eurozone has entered recession in the last quarter of 2023 and growth prospects remain modest, European Central Bank Vice President Luis de Guindos said on Wednesday, as quoted by Reuters and Agerpres.

Christine Lagarde and Luis de Guindos, President and Vice-President of the ECBPhoto: Giannis Panagopoulos-Eurokinissi / Imago stock and People / Profimedia Images

Growth in the eurozone economy has been close to zero for most of 2023, and this year has seen only a modest recovery, helping to calm inflation that has been above the ECB’s target for several years and prompted the euro’s guardians to raise interest rates to record highs.

“Indicators point to a contraction in the economy also in December, confirming the possibility of a technical recession in the second half of 2023 and a weak short-term outlook,” Luis de Guindos told a conference organized in Madrid.

“Incoming data indicate that the future remains uncertain and risks are diminishing,” the ECB vice-president added. Luis de Guindos said the slowdown in economic activity is general, affecting the construction and manufacturing sectors in particular, and it is possible that the services sector will also be affected in the coming months.

The ECB is reducing expectations for a reduction in key interest rates

On monetary policy, de Guindos gave no news, only reiterating the ECB’s guidance that a deposit rate of 4% maintained “for a sufficiently long period of time” would help to restore inflation to the ECB’s 2% rate. goal.

Investors expect the ECB to cut interest rates at least five times this year, with the first move expected in March or April, a scenario that some ECB officials consider “excessive” given the ongoing pressure on prices.

Inflation in the euro zone fell sharply during 2023, but returned to rising to 2.9% last month, mainly due to technical factors, and is likely to remain at this level for some time.

“Positive base effects from energy prices will begin to take their toll, and energy compensation measures will soon end, leading to a temporary recovery in inflation,” de Guindos emphasized.

The ECB’s forecasts show that inflation will not return to the target level until next year, but several private forecasting organizations disagree with this assessment and believe that the ECB is underestimating the disinflation phenomenon, just as it has misjudged the acceleration of inflation.