ECB's Lagarde: Pre-Covid Level of Real GDP Likely Regained in 1Q 2022
14 June 2021
By David Barwick – FRANKFURT (Econostream) – European Central Bank President Christine Lagarde on Monday gave an even more upbeat assessment of euro area economic prospects than at Thursday’s press conference, predicting a return to pre-Covid levels of output already in the first quarter of next year.
In an interview with Politico that the ECB made available, Lagarde said, ‘In terms of real gross domestic product (GDP) we are likely to be back to the pre-Covid-19 level that we had in December 2019 – if the Delta variant doesn’t ruin our plans – in the first quarter of 2022. That is one quarter earlier than we had expected in our projections in March.’
Lagarde reiterated the need for policy to accompany the recovery beyond its mere beginning, which she said had already occurred. ‘We need to really anchor the recovery’, she said. ‘We always talk about inflation anchoring and we are not oblivious to that. But the recovery needs to be firm, solid and sustainable.’
Comparing the euro area economy once again to a patient, she said that ‘[y]ou don’t remove the crutches from a patient unless and until the muscles have started rebuilding sufficiently so that the patient can walk on his or her own two legs.’
Reiterating her assessment that economic activity would be back at pre-pandemic levels in 1Q, Lagarde said that she was nevertheless ‘not suggesting that the pandemic emergency purchase programme (PEPP) is going to stop on 31 March. We have plenty of flexibility, but in terms of economic outlook we are heading in the right direction.’
Asked to at least confirm the presence of indications that PEPP could then end, she rejected any wording other than that of the introductory statement, according to which, she reminded, the PEPP would run ‘until at least March 2022 and, in any case, until the Governing Council judges that the pandemic crisis phase is over.’
‘But our projection, and the design of the PEPP as we have it, seems to be heading in the right direction’, she said. ‘But as stated previously, it is far too early to debate these issues.’
The ECB’s ongoing strategy review will in any event ‘stay within the boundaries of the EU Treaty’, she said. ‘What would have been unreasonable would have been to go through that process and declare that we needed a Treaty change.’
Lagarde said that she ‘would hope’ to be able to present results towards the end of summer, but that ‘whether it is at the end of the summer or in autumn is less important than the quality of the review and the solid consensus.
The need to be ‘be attentive to the big developments around us as well’ as to the price stability mandate did not mean that the review would elevate the status of the ECB’s secondary objective, she said. Climate change, for example, played a role in price stability, she said.
Were the strategy review to yield a more clearly symmetrical objective for the ECB, ‘that would be a clarification of the symmetry that has already been affirmed since July 2019, but which is, which probably has been, confusing for observers and for markets as well’, she said.