The ECB forecasts lower growth and more inflation for the euro area in 2023

Regarding the gross domestic product (GDP), the ECB expects growth of 0.9% this year, compared to the 1.0% previously forecast, for 2024 it expects economic growth of 1.5% and 1.6% in 2025.

“Inflation is slowing, but it is expected to remain too high for too long,” the institution said in a statement.

The ECB explained that the increase in core inflation is due to “past bullish surprises” and that the strength of the labor market could slow down the process of price moderation.

The reference deposit rate now stands at 3.5%, its highest level since May 2001, the refinancing rate stands at 4.0% and the marginal credit facility rate at 4.25%.

After a decade of cheap money, the ECB began an unprecedented cycle of monetary tightening to counter rising consumer prices in the aftermath of Russia’s offensive in Ukraine.

In future decisions, the Governing Council will ensure that official interest rates are located at sufficiently restrictive levels to bring inflation back to the 2% target, as well as that decisions will continue to be based on the evaluation of prospects, which in turn depend on new economic and financial data. The ECB left the door open for additional interest rate increases, said Gabriela Siller, director of economic-financial analysis at Banco Base.

By raising rates, central banks reduce their demand for credit and, therefore, investment and consumption by households and companies, with the consequence of a slowdown in demand and pressure on prices.

With information from AFP and EFE