(Reuters) – European Central Bank President Christine Lagarde resisted pessimism on Wednesday, predicting an economic recovery as COVID-19’s uncertainty eased and saying Europe has all the tools it needs to overcome the crisis .
Even with a large part of the 19 euro area members in block, Lagarde continued to foresee a recovery, as long as economic restrictions can be lifted from the second quarter and the bloc can overcome a “laborious” start in vaccinations.
The ECB cut its forecast for 2021 growth to 3.9% last month, but the increasingly widespread restrictions on movement and activity in countries like Germany and France, along with the slow release of vaccines, are already challenging this prospect. .
“I think our last projections in December are still clearly plausible,” said Lagarde in an interview at the Reuters Next conference. “Our forecast is based on blocking measures until the end of the first quarter.”
The ECB said on 10 December that its forecasts assumed “sufficient” levels of herd immunity before the end of 2021.
“What would be a concern would be that after the end of March these member states still needed to have blocking measures and if, for example, vaccination programs were slowed down,” added Lagarde.
The persistent rise in the euro against the dollar may also hurt growth and inflation, but Lagarde maintained the cautious tone of the ECB, despite major changes at the turn of the year.
“We are very attentive, we will remain extremely attentive to the impact on prices that exchange rates have,” she said, adding that the ECB does not target any specific exchange level.
Private sector economists are already cutting their growth projections, with Bank of America now forecasting an expansion of 2.9% – a percentage point below its previous forecast.
To support the eurozone, the ECB has already extended ultra-easy policy until 2022, but with borrowing costs at historic lows and in negative territory in some eurozone countries, its remaining stimulus firepower is limited.
Lagarde said the ECB could expand its bond-buying stimulus program again, if necessary, but it could also refrain from using the entire 1,850 trillion euro ($ 2.25 trillion) envelope it reserved for purchases if the crisis pass.
“If the envelope we match is excessive and we don’t need the entire envelope, so be it,” she said. “We are going to buy properly to meet our goal of favorable financing conditions. If more is needed, we will recalibrate. “
Lagarde added that a comprehensive review of the strategy, due to be completed in the middle of the year, will give the ECB a better-defined inflation target and should also define its role in combating climate change.
“It is affecting inflation, financial stability and balance sheets for everyone, including central banks,” said Lagarde of climate change. “We had 33 events (important weather events) just last year, the damage of which exceeded one billion euros.”
“If that is not significant, then I need an alert, but I think the alert is climate change,” she added.
Lagarde also rejected calls for the bank to publish its new inflation target before the conclusion of its policy review, arguing that a “very large” group within the Governing Council wants a single package.
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Written by Balazs Koranyi; Catherine Evans and Alexander Smith edition