European Central Bank President Christine Lagarde warned that the euro area economy will shrink by 8-12% this year, more than she had previously predicted. In a meeting with young Europeans, broadcast on the ECB’s website, Lagarde said that the coronavirus health crisis has caused a huge economic crisis due to the paralysis of the economy.
Lagarde had predicted after the Governing Council meeting in late April that the euro area could shrink by 5 to 8%. The President of the ECB explained that the ECB plans various scenarios to measure the impact of the crisis caused by the pandemic. The milder scenario predicts a 5% contraction, the medium 8% and the more severe 12% in 2020.
Lagarde warned that the “soft scenario is outdated” forecast and the contraction is most likely to be between medium and severe, between 8 and 12%. The euro area economy is going to contract in a year twice as much as it did in the financial crisis in 2008 and 2009, according to the ECB president.
The Governing Council of the ECB meets again on Thursday next week to analyze the economic situation in countries that share the euro and it is expected that it will increase monetary stimuli by increasing the volume of purchases of emergency debt due to the pandemic.
It will also have the new macroeconomic forecasts, for growth and inflation, for the ECB staff, Lagarde recalled.
So far, the ECB has implemented a pandemic emergency debt purchase program worth 750 billion euros until the end of the year.
It also decided to buy another 120.00 million euros until the end of this year and since November last year it has acquired bonds worth 20,000 million euros per month.
The peculiarity of the emergency purchasing program is that it is flexible and the ECB can buy more debt a country a month if necessary if its risk premium has skyrocketed. .