By Marta Vilar – MADRID (Econostream) – European Central Bank Governing Council member Álvaro Santos Pereira said on Monday that the Middle East conflict has not yet had a “dramatic” effect on the euro area economy, though this could shift depending on how widely and how long the conflict continues.

In an interview with Bloomberg, Pereira, who heads the Banco de Portugal, said that the conflict had not started a long time ago and therefore “we need to see in the new few weeks how things evolve.”

“Negative supply shock like this usually leads to less growth and more inflation,” he said. “And so, both symptoms aren’t great.”

Pereira said that preventing second-round effects was extremely important.

“If the data start telling us that we have issues with significantly higher prices and inflation expectations, we’ll need to act,” he said. “Otherwise, we need to monitor and decide.”

The ECB must monitor incoming and be “ready to act on it,” he said.

He said recent developments indicated the outlook now lied between the ECB’s baseline and its adverse scenario.

“There’s a hit to the European economy, but it hasn’t been dramatic,” he said. “But of course, all depends on how big the conflict becomes and its duration.”

The euro area economic had been resilient prior to the start of the war, he said, but growth around 1% was not “satisfactory.”

“It’s not stagnation, but it’s close,” he added.

 

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