ECB’s Lagarde: Clearly Seeing Bit Less Uncertainty on Some Fronts

12 November 2020

By David Barwick – FRANKFURT (EconoStream) – European Central Bank President Christine Lagarde said Thursday that the high degree of uncertainty facing policymakers has diminished somewhat recently, but at the same time dampened expectations of a quick medical solution to the pandemic.

Speaking on a panel at the ECB Forum on Central Banking 2020, Lagarde said that leaving policy support in place for now was essential to avoid economic scarring.

‘… we are clearly seeing a little less of uncertainty on several fronts’, she said. ‘The fact that the U.S. election has now taken place has removed some uncertainty. The fact that Brexit is progressing has probably attenuated the anxiety but not removed the uncertainty yet. And the fact that a vaccine has been announced and seems to be 90% efficient and likely to be approved in early 2021 is also removing some uncertainty.’

Looking across a ‘huge, big river of uncertainty’, she said, ‘we see the other side now …’. However, she cautioned against being ‘exuberant about this vaccination’, given the various uncertainties to be addressed before ‘we can reach the herd immunity, which will then give us more certainty from the health point of view, which in turn will facilitate not only our economic forecasts, but the decisions that will be made by economic agents going forward in terms of consumption, in terms of investment, in terms of jobs, of course.’

Still, she observed later that the culling in Denmark of millions of mink over worries about a new mutation of the coronavirus suggested that a vaccine might not put a definitive end to the pandemic.

Lagarde called it ‘critically important’ that monetary and fiscal policy support ‘continue to support the economy, so that there is as little long-lasting damage as possible.’

Referring to her remarks at the same venue on Wednesday, she expressed concern about the risk that economic agents cease to view the pandemic ‘as a one-off’ and incorporate this into their behaviour.

She reiterated as well that it is ‘critically important that we can maintain the financing conditions that have been operating well in order to sustain the economy so far…’, and that in addition to the level of interest rates on loans, the maturities available were also ‘of critical importance’.

In other comments, Lagarde said of the crisis’ longer-term impact that ‘[t]he scarring effect is empirically demonstrated, and it is clear that in this particular crisis, young people are more affected, it’s obvious.’