ECB’s Stournaras: Russian Assault Deflationary in Mid-Term, Warrants Cautious Policy Stance

8 March 2022

By David Barwick – FRANKFURT (Econostream) – Russian military aggression against Ukraine has deflationary implications for the medium term and warrants caution on the part of policymakers, according to European Central Bank Governing Council member Yannis Stournaras on Tuesday.

Speaking at the Annual General Meeting of the Hellenic Insurance Association, Stournaras, who heads the Bank of Greece, said, ‘Russia's invasion of Ukraine creates a serious supply-side disruption, which negatively affects production and particularly increases energy prices, which are likely to rise even more in the future.’

This could dampen private consumption and thus growth, he said.

‘The Ukrainian crisis and its resolution are likely to delay the decline in inflation to levels consistent with the objective of price stability’, he said. ‘In the short term, the effects of this crisis are working in the direction of stagflation, but in the medium term they lead to deflation, depending, of course, on the de-escalation of uncertainty.’

Stournaras urged ‘a cautious stance as it is still too early to assess [the crisis’] impact.’

Prior to Russia’s unprovoked attack on its neighbour, Greek growth this year was pegged at 5%, he noted.

‘The forecast for the course of the economy is, however, subject to significant uncertainties and risks related to the evolution of the Ukrainian crisis and its impact on the global economy and the money and capital markets, the acceleration of inflation and the reaction of economic policy to an environment of increased uncertainty about the course of the economy’, he said.