ECB’s Lagarde: Economy to Return to Pre-Pandemic Level by End-2022

5 June, 2020

By David Barwick – FRANKFURT (EconoStream) – The economy is very likely by the end of 2022 to be back where it was before the pandemic, European Central Bank’s Governing Council President Christine Lagarde said Friday.

Speaking in an interview with French public national television channel France 2 after the press conference to explain the ECB’s monetary policy decisions, Lagarde, according to a transcript provided by the ECB, said that as economies are being reopened, a gradual pick-up in activity can be observed.

‘We were at the lowest point of the curve and we are carefully going back up’, she said. Although real output in 2020 is now seen contracting by 8.7%, ‘we will return to positive growth in 2021, and it is very likely that by the end of 2022 our economies will have returned to where they were when this catastrophic crisis hit’, she said.

Asked what the impact would be of the ECB’s Pandemic Emergency Purchase Programme, whose original €750bn volume the Governing Council decided on Thursday to stock up by €600bn, Lagarde said the purchases would translate into lower interest rates for all.

‘Mechanically, our actions are transmitted along the entire chain of financial products and loans extended to businesses and households’, she said. ‘If the ECB lowers the interest rates that countries have to pay to borrow, this has a mechanical effect that also lowers the rates offered to businesses and households.’

Lagarde reiterated her defense of government borrowing to counter the economic fallout from the pandemic, arguing that there were ‘no other options’ to incurring the debt associated with a fiscal response and observing that the debt could currently be serviced at ‘especially low rates’.