MNI BRIEF: FinStab Risks Grow Amid Tightening, Slowdown - ECB

More heavily-indebted households, firms and countries face increased financial stability risks as a result of rising inflation, tightening financial conditions and a downturn in the economic outlook, the ECB’s Financial Stability Review reports, noting stresses have also emerged in financial markets and investment funds.

“All of these vulnerabilities could unfold simultaneously, potentially reinforcing one another,” the Review notes, adding that the frequency of corporate defaults could increase if the outlook deteriorates further, particularly for energy-intensive firms.

“People and firms are already feeling the impact of rising inflation and the slowdown in economic activity,” ECB vice-president Luis de Guindos said. “Our assessment is that risks to financial stability have increased, while a technical recession in the euro area has become more likely.”