According to Isabel Schnabel, a member of the Executive Board of the ECB, what it needs to do now is not be off guard and recognize the growing downward risks to economic growth. Speaking at a forum in Berlin, Schnabel underlined the growing economic headwinds such as persistent inflation and supply chain disruptions. She has, however, underscored that these issues cannot be overlooked as they have strong implications for the Eurozone's economic outlook.
Mr. Schnabel emphasized that despite the recent moderation of the inflationary pressures, price stability challenges for the Eurozone are far from over. He added that inflation is above the medium-term target of the ECB at 2%, despite signs of moderation, and such a situation calls for keen watching and agile policy responses so that it does not get entrenched.
The ECB has been walking a tightrope in balance between fostering economic recovery from the pandemic and taming inflation. Schnabel pointed out that even though the economic recovery has proved resilient, it is not immune to the general global economic uncertainties currently felt. These uncertainties arise from geopolitical tensions, including those caused by the war in Ukraine, and from the consequences of the policies on climate change in transforming the economic landscape.
Added to this, supply chain issues were also put forward as one of the major factors weighing down economic performance. Bottlenecks in global supply chains are causing delays in production and deliveries, thus impeding industries across the Eurozone, explained Schnabel. Such disruptions could be sustained, she added, and might lead to more persistent inflationary pressures that further complicate the efforts of the ECB in maintaining price stability.
Addressing the policy implications, Schnabel said, "The ECB is committed to its primary mandate of pursuing price stability." However, she added that what was called for, nevertheless, was the subtle balance in framing policy-one that took into consideration the general economic context and, notably, the risks to growth. In other words, this seems to indicate that the ECB will further adjust comprehensively with the policy tools to cope with an evolving economic landscape.
These comments from Schnabel have come at a very critical time when central banks of the world face balancing acts between growth and inflation. Her remarks underline the necessity of concerted policy efforts to overcome the complex interaction of global economic forces.
The bottom line of this speech by Schnabel is to remind everyone of the continuing and new headwinds the Eurozone economy is facing. The acknowledgment of this headwind by the ECB is important as it walks this path forward in ensuring that economic policies are calibrated in support of both growth and stability during these uncertain times.
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Author: Laura Mitchell
