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Lagarde: Downside Growth Risks, Amid Weaker Bank Loan Dynamics

ECB

Lagarde continues her opening comments by noting that risks to the growth outlook are tilted to the downside.

  • Persistent elevated financial market tensions could dampen confidence.
  • Russia’s war in Ukraine continues to be a significant downside risk to the economy and could again push up energy and food prices.
  • There could be an additional drag if the world economy weakened more sharply than expected.
  • However, companies could adapt more quickly to the challenging international environment, which coupled with the fading energy shock could support euro area growth.

Market interest rates rose considerably following the last meeting, but the increase has strongly reversed in recent days given the market tensions.

  • Bank credit to euro area firms has become more expensive. Household borrowing has become more expensive, especially owing to higher mortgage rates.
  • There has been a further slowdown in the growth of loans to households. These weaker loan dynamics have resulted in money growth slowing.
Inflation will remain too high, for too long, which is why the ECB raised its key policy rates.

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