Lagarde warns that the risk of recession has increased

Warns of recovery risks if governments choose to cut investment in their consolidation plans.

Lagarde warns that the risk of recession has increased

Warns of recovery risks if governments choose to cut investment in their consolidation plans


The president of the European Central Bank (ECB), Christine Lagarde, has indicated that the threat of a recession in the euro zone is more intense now, despite the fact that the growth data for the economy have been better than expected, so that it considers "vital" to demonstrate the institution's commitment to its price stability mandate.

"Although the latest GDP growth data has surprised to the upside, the risk of recession has increased," Lagarde said in a speech in Frankfurt.

However, he recalled that historical experience suggests that a recession is unlikely to significantly reduce inflation, at least in the short term, so it is "vital" that the ECB shows commitment to its mandate to ensure that inflation expectations remain anchored and there are no second round effects.

In this sense, he has recognized that inflation in the euro zone is too high, with a record of 10.6% in October, warning that it is likely to "remain high for a prolonged period".

"We are committed to bringing inflation down to our medium-term goal and we will take the necessary steps to do so," he added.

However, the ECB president has defended that, although monetary policy will ensure a return of inflation to the target in the medium term, the evolution of the economic outlook will also depend on the alignment between it and other actors, underlining the importance of policy fiscal.

In the short term, in a context of high inflation, fiscal intervention must be temporary, targeted and adapted, while, looking to the future, since monetary policy can guide demand, but cannot remove existing restrictions on growth , other political areas must act.

In his opinion, the removal of these restrictions will not only rebuild supply that has been affected by recent crises, but will, over time, strengthen domestic demand in a world where external demand is becoming less predictable.

"A drive to accelerate three key transitions will determine our future: towards cleaner energy, greater economic security and a more digital and productive economy," the Frenchwoman stressed.

In this sense, he has warned that, when the time comes for governments to consolidate their fiscal policies, they will have to choose between reducing transfers, as well as public consumption and increasing taxes or cutting public investment.

"If they opt for this last method, as they did after the great financial crisis, there is a risk that the supply will not recover and the restrictions on growth will continue to limit," he added.

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