11 Jan. () –
The governor of the Bank of Spain, Pablo Hernández de Cos, has assured that the latest available data points to confirm the view that, in the event of a recession in the euro zone this year, it will be “relatively short and shallow”. .
This is how the governor expressed himself during his speech at an event organized within the framework of Spain Investors Day. Despite the recessionary situation, De Cos has indicated that an improvement in economic activity is expected in the second half of 2023 under the assumption of a rebalancing of the energy market, a reduction in uncertainty and an improvement in the real income of the families.
The central banker recalled the latest Eurosystem forecasts, which contemplate average inflation in the euro area as a whole of 6.3% for this year, 3.4% in 2023 and 2.3% in 2025. All these figures they are above the 2% target of the European Central Bank (ECB).
In this regard, De Cos has indicated, as previously reported by the ECB, that interest rates will continue to rise in the future to stop this upward price spiral. In recent months, the euro area has undergone the fastest normalization process in its history, with a cumulative rise in the price of money of 250 basis points.
By way of example, De Cos has indicated that, since the last ECB monetary policy meeting, held in December, the interest rates expected by the market have risen by 30 basis points, to around 3.4%. These rates include “a positive term premium element”, so De Cos has indicated that the market expects that the maximum rate that the ECB rates would reach “would be somewhat below that figure”.
“Our future interest rate decisions will continue to be data driven and will follow an approach where decisions are made at each meeting,” the governor stressed.
Regarding the macroeconomic recommendations, De Cos has called for “coherence” between fiscal and monetary policy. Thus, he has stressed that fiscal support measures to protect the economy from the impact of energy prices “must be temporary, be focused on the most vulnerable and with a design that is compatible with maintaining incentives to consume less energy.”
Likewise, it has also considered it “desirable” to agree on an equitable distribution between wages and business margins of the loss of income derived from the increase in energy prices to avoid an inflationary spiral.
