ECB: Stagflation Relatively Unlikely Now as Compared to 1970s; Experts See Risk as Low

22 June 2022

By David Barwick – FRANKFURT (Econostream) – The present economic situation is different from that of the 1970s in respects that make stagflation currently less likely, and experts accordingly see little risk of stagflation in the euro area, the European Central Bank said on Wednesday.

In a pre-release from the fourth economic bulletin of 2022, due out Thursday, the ECB noted the differing degrees of oil and gas dependence today; the relatively reduced risk of major second-round effects given the diminished importance of unions and wage indexation; the ongoing post-pandemic demand recovery; and the clearer purposefulness of contemporary monetary policy.

‘Current expert forecasts remain far from a stagflation scenario’, notwithstanding recent revisions of projections for inflation upwards and for growth downwards, the ECB wrote. Consensus Economics’ forecast of 2023 real GDP growth is still above 2%, the ECB observed, with only three of those surveyed anticipating growth below 1%.

‘While inflation forecasts since the outbreak of the war are for inflation to be above 2% on average in 2023, most forecasters expect inflation to drop below 2% in the second half of 2023’, the ECB said.

‘However, uncertainty has increased, and the dispersion of forecasts has risen’, it added. ‘The coefficients of variation for both inflation and growth forecasts have increased by more than 30% and 50% respectively since the start of the war.’