ECB Brief: De Guindos Sees Economic Outlook Brightening, Breaks No New Ground

28 June 2021

By David Barwick – FRANKFURT (Econostream) – This is a quick take on comments made Monday by European Central Bank Vice President Luis de Guindos in a speech at the Frankfurt Euro Finance Summit:

• De Guindos broke no new ground in his speech (Q&A to follow).
• Said that ‘the economic outlook is brightening’ and that the ‘central expectation is for a sustained recovery’, although this ‘could well turn out bumpy’, repeated forecasts for growth and inflation.
• Predicted medium-term inflation below the ECB’s objective, but ‘attentive to incoming information to assess whether the temporary increase in inflation gives rise to second round effects that could translate into a more permanent development.’ This was not meant to sound more alarmist than the ECB’s previous language on inflation.
• Said banks had ‘weathered’ (no qualifying adjectives) the crisis, but ‘still face important risks and continue to grapple with the long-run structural challenge to achieve a sustainable improvement in their profitability.’
• Warned of ‘early signs of weakening credit quality, for example the share of loans reported as subject to heightened credit risk has risen significantly and asset quality is likely to deteriorate once support measures are phased out.’
• Urged dealing with persistent structural challenges facing the banking sector as ‘all the more urgent by the emergence of new challenges, notably climate change.’