The European Central Bank (ECB) forecasts that the eurozone economy may decline between “5 and 12%” this year, reflecting the “great uncertainty” about the economic impact of the covid-19 pandemic, Christine Lagarde said on Wednesday .
After the monetary policy meeting held today, the ECB president said in a press conference that the eurozone economy faces “a contraction with unprecedented magnitude and speed in times of peace”.
This violent recession should be followed by a recovery, if the containment measures adopted to stop the pandemic are progressively lifted, but there are still a lot of uncertainties, added Lagarde.
In the first quarter, the eurozone’s Gross Domestic Product (GDP) fell by 3.8%, according to Eurostat data released today.
“Given the great uncertainty surrounding the economic impact [of the pandemic], the ECB’s growth scenarios suggest that GDP could fall by 5% to 12% this year,” he explained.
“The fall in economic activity in April suggests that the impact is likely to be more severe in the second quarter,” said Lagarde.
Growth is expected to normalize in the following years, he said, adding, however, that “the extent of the recovery” depends on the duration of the restrictive measures and the “success of policies aimed at limiting the impact on income and employment”.
Lagarde also said that the deterioration of the economy should have “a negative effect” on inflation “over the next few months”.
The ECB decided today to leave interest rates unchanged, but eased loan terms to banks and said it was available to increase the volume of debt purchases.
