ECB’s Panetta: Weak Economy Main Downside Risk for Inflation, Energy New Upside Risk

19 February 2025

By Marta Vilar – MADRID (Econostream) – European Central Bank Governing Council member Fabio Panetta said on Wednesday that the biggest downside risk to inflation stemmed from the weak economy and argued that energy was a new threat on the upside.

Speaking to the Executive Committee of the Italian Banking Association, Panetta, who heads the Banca d’Italia, said that the ‘main downside risk to inflation is the economy’.

Economic output was not growing and the expected recovery had been delayed, he said.

‘We have more persistent signs of weakness in the European economy than we expected’, he said. ‘A consumption-driven recovery has not taken place.’

Inflation was falling towards its 2% target, he said, but there was a new risk related to the evolution of energy prices in the last few weeks.

‘Energy is rather complex because it is affected by demand factors, supply factors related to geopolitical tensions, it is affected by choices made by a cartel of producers’, he said.

For Panetta, this meant that the next monetary policy moves had to be taken with caution.

One of the strengths of the Eurozone remained the labour market, he said, but some signs of weakness had began to emerge.

‘We are beginning to see a reduction in fixed-term contracts, which are the ones that are easiest for companies to reduce’, he added.