ECB’s Rehn: Disinflation on Track, Risks to Growth Outlook Tilted to the Downside

27 September 2024

By Marta Vilar – MADRID (Econostream) – European Central Bank Governing Council Olli Rehn said on Friday that disinflation was on track in the EU but that the recovery was frail.

In a speech at the 8^th ESRB annual conference, Rehn, who heads the Bank of Finland, said that ‘while disinflation in the EU is on track, financial stability risks remain elevated amid heightened geopolitical risks and the still fragile recovery of the European economy’.

The ECB had revised its growth outlook down in its latest forecast and risks to growth remained tilted to the downside, he observed.

‘We have to be aware of both the direct and indirect impact of current geopolitical risks on the EU financial system’, he added.

Geopolitical events may have a direct impact on financial markets, such as high volatility and movements on capital flows exchange rates and credit spreads, but they can also disrupt global trade and increase commodity prices indirectly, according to Rehn.

After remembering the ‘short-lived, market correction in early August’, Rehn said that if it were to be repeated, ‘the vulnerabilities in the non-bank sector could amplify adverse market dynamics through forced asset sales’.

‘We need to continue closely monitoring the CRE market’, he said.