Increasing pandemic poses serious risks to eurozone recovery: Lagarde - GulfToday

Increasing pandemic poses serious risks to eurozone recovery: Lagarde


Christine Lagarde. File

European Central Bank chief Christine Lagarde warned on Thursday that the pandemic still poses “serious risks” to the eurozone economy as concerns grow about new virus variants and sluggish vaccination campaigns.

The Frankfurt institution’s governing council held back from tweaking its ultra-loose monetary policy at its first meeting of the year, having already ramped up stimulus in December.

Lagarde stressed that “ample monetary stimulus” remained essential to steer the 19-nation currency club through the Covid-19 upheaval, and that the ECB stood ready to do more as needed.

“The pandemic continues to pose serious risks to public health and to the euro area and global economies,” she told a press conference held online because of virus precautions.

The start of mass vaccination drives in the European Union was “an important milestone”, she said, but the rollout has got off to a bumpy start in many nations.

The latest virus setbacks “are disrupting economic activity,” Lagarde said, noting that the services sector was hit especially hard.

“The intensification of pandemic poses some downside risks to the short-term economic outlook,” she added.

The ECB in December forecast 3.9 per cent growth for 2021, after an estimated contraction of 7.3 per cent in 2020.

Lagarde said the ECB’s forecasts “remain valid” for now, as they took into account lockdowns persisting through the first quarter coupled with a gradual start to vaccination.

The former French finance minister also reiterated a long-standing plea for European governments to help support the ECB’s efforts through fiscal policy.

She called on member states to speed up the ratification of a recently agreed 750-billion-euro recovery fund, saying it had a “key role” to play in financing the regions’ bounce-back.

Under Lagarde, the ECB took unprecedented steps last year to cushion the impact of Covid-19 on the euro economy.

Its biggest weapon is a pandemic emergency bond-buying scheme, known as PEPP, that was in December topped up by 500 billion euros to reach a total envelope of 1.85 trillion euros. The scheme was also extended to March 2022.

The bank has also offered ultra-cheap bank loans and held interest rates at historic lows.

Lagarde said inflation was “likely to increase in the coming months”, partly also due to the end of a temporary sales tax cut in Germany from January.

But she said “underlying price pressures are expected to remain subdued due to low demand in tourism and travel sectors, and the appreciation of the euro against the dollar.”

Lagarde said the ECB was monitoring exchange rates “very carefully”.

GLOBAL STOCK MARKETS: European stock markets’ bounce from Joe Biden taking office as US president lost steam on Thursday.

Attention switched to the European Central Bank (ECB), which met to take stock of its monetary stimulus efforts as more infectious strains of the coronavirus and stricter shutdowns cloud the eurozone’s economic outlook.

The euro hit a six-month low versus sterling, with the British currency buoyed by the UK’s early vaccine rollout, analysts said.

The stronger pound, which also hit a 2.5-year high versus the dollar, weighed on London’s benchmark FTSE 100 index featuring multinationals earning in the US unit.

But the Europe’s single currency gained ground against the dollar, after ECB chief Christine Lagarde appeared to “shrug off” the euro’s rise during a press briefing, according to Matthew Weller at Gain Capital.

A stronger euro makes imports cheaper, keeping a lid on consumer prices and inflation, while exports become less competitive, hurting growth prospects.

Asian stock markets made solid gains Thursday, as Biden prepared to unveil plans on tackling the coronavirus crisis. Wall Street’s main indexes hovered near record highs on Thursday as investors counted on more pandemic relief and speedy vaccine rollouts under the Biden administration to support the economy after data showed a weakening labor market recovery.

While the benchmark S&P 500 and the blue-chip Dow were about flat by 10:00am after gaining in the past two sessions, a jump in shares of technology heavyweights Alphabet Inc, Apple Inc and Inc lifted the Nasdaq by 0.2%.

Three of the 11 S&P sectors rose in early trading, with communication services and consumer discretionary gaining the most.

The housing market again showed strength in December, with homebuilding projects jumping 5.8 percent from the prior month. Meanwhile, new jobless claims fell marginally from the prior week, but remained at 900,000, a stunningly high level some 10 months into the coronavirus pandemic.

About 30 minutes into trading, the Dow Jones Industrial Average was unchanged at 31,186.54.

The broad-based S&P 500 was also flat at 3,851.49, while the tech-rich Nasdaq Composite Index gained 0.1 percent to 13,475.00.

Hong Kong’s stock market closed slightly lower on profit-taking after five days of gains, having earlier in the day breached 30,000 points for the first time since April 2019.


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