Christine Lagarde: ECB press conference - introductory statement
Introductory statement by Ms Christine Lagarde, President of the European Central Bank, and Mr
Luis de Guindos, Vice-President of the European Central Bank, Frankfurt am Main, 10 March
2022.
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Good afternoon, the Vice-President and I welcome you to our press conference.
The Russian invasion of Ukraine is a watershed for Europe. The Governing Council expresses
its full support to the people of Ukraine. We will ensure smooth liquidity conditions and implement
the sanctions decided by the European Union and European governments. We will take whatever
action is needed to fulfil the ECB's mandate to pursue price stability and to safeguard financial
stability.
The Russia-Ukraine war will have a material impact on economic activity and inflation through
higher energy and commodity prices, the disruption of international commerce and weaker
confidence. The extent of these effects will depend on how the conflict evolves, on the impact of
current sanctions and on possible further measures. In recognition of the highly uncertain
environment, the Governing Council considered a range of scenarios in today's meeting.
The impact of the Russia-Ukraine war has to be assessed in the context of solid underlying
conditions for the euro area economy, helped by ample policy support. The recovery of the
economy is boosted by the fading impact of the Omicron coronavirus variant. Supply bottlenecks
have been showing some signs of easing and the labour market has been improving further. In
the baseline of the new staff projections, which incorporate a first assessment of the implications
of the war, GDP growth has been revised downwards for the near term, owing to the war in
Ukraine. The projections foresee the economy growing at 3.7 per cent in 2022, 2.8 per cent in
2023 and 1.6 per cent in 2024.
Inflation has continued to surprise on the upside because of unexpectedly high energy costs.
Price rises have also become more broadly based. The baseline for inflation in the new staff
projections has been revised upwards significantly, with annual inflation at 5.1 per cent in 2022,
2.1 per cent in 2023 and 1.9 per cent in 2024. Inflation excluding food and energy is projected to
average 2.6 per cent in 2022, 1.8 per cent in 2023 and 1.9 per cent in 2024, also higher than in
the December projections. Longer-term inflation expectations across a range of measures have
re-anchored at our inflation target. The Governing Council sees it as increasingly likely that
inflation will stabilise at its two per cent target over the medium term.
In alternative scenarios for the economic and financial impact of the war, which will be published
together with the staff projections on our website, economic activity could be dampened
significantly by a steeper rise in energy and commodity prices and a more severe drag on trade
and sentiment. Inflation could be considerably higher in the near term. However, in all scenarios,
inflation is still expected to decrease progressively and settle at levels around our two per cent
inflation target in 2024.
Based on our updated assessment and taking into account the uncertain environment, the
Governing Council today revised the purchase schedule for its asset purchase programme
(APP) for the coming months. Monthly net purchases under the APP will amount to €40 billion in
April, €30 billion in May and €20 billion in June. The calibration of net purchases for the third
quarter will be data-dependent and reflect our evolving assessment of the outlook. If the incoming
data support the expectation that the medium-term inflation outlook will not weaken even after the
end of our net asset purchases, the Governing Council will conclude net purchases under the
APP in the third quarter. If the medium-term inflation outlook changes and if financing conditions
become inconsistent with further progress towards our two per cent target, we stand ready to
revise our schedule for net asset purchases in terms of size and/or duration.
Any adjustments to the key ECB interest rates will take place some time after the end of our net
purchases under the APP and will be gradual. The path for the key ECB interest rates will
continue to be determined by the Governing Council's forward guidance and by its strategic
commitment to stabilise inflation at two per cent over the medium term. Accordingly, the
Governing Council expects the key ECB interest rates to remain at their present levels until it
sees inflation reaching two per cent well ahead of the end of its projection horizon and durably for
the rest of the projection horizon, and it judges that realised progress in underlying inflation is
sufficiently advanced to be consistent with inflation stabilising at two per cent over the medium
term.
We also confirmed our other policy measures, as detailed in the press release published at
13:45 today.
I will now outline in more detail how we see the economy and inflation developing, and will then
explain our assessment of financial and monetary conditions.
Economic activity
The economy grew by 5.3 per cent in 2021, with GDP returning to its pre-pandemic level at the
end of the year. However, growth slowed to 0.3 per cent in the final quarter of 2021 and is
expected to remain weak during the first quarter of 2022.
The prospects for the economy will depend on the course of the Russia-Ukraine war and on the
impact of economic and financial sanctions and other measures. At the same time, other
headwinds to growth are now waning. In the baseline of the staff projections, the euro area
economy should still grow robustly in 2022 but the pace will be slower than was expected before
the outbreak of the war. Measures to contain the spread of the Omicron coronavirus variant have
had a milder impact than during previous waves and are now being lifted. The supply disruptions
caused by the pandemic also show some signs of easing. The impact of the massive energy
price shock on people and businesses may be partly cushioned by drawing on savings
accumulated during the pandemic and by compensatory fiscal measures.
Over the medium term, according to the baseline of the staff projections, growth will be driven by
robust domestic demand, supported by a stronger labour market. With more people in jobs,
households should earn higher incomes and spend more. The global recovery and the ongoing
fiscal and monetary policy support are also contributing to this growth outlook. Fiscal and
monetary support remains critical, especially in this difficult geopolitical situation.
Inflation
Inflation increased to 5.8 per cent in February, from 5.1 per cent in January. We expect it to rise
further in the near term. Energy prices, which surged by 31.7 per cent in February, continue to be
the main reason for this high rate of inflation and are also pushing up prices across many other
sectors. Food prices have also increased, owing to seasonal factors, elevated transportation
costs and the higher price of fertilisers. Energy costs have risen further in recent weeks and
there will be further pressure on some food and commodity prices owing to the war in Ukraine.
Price rises have become more widespread. Most measures of underlying inflation have risen
over recent months to levels above two per cent. However, it is uncertain how persistent the rise
in these indicators will be, given the role of temporary pandemic-related factors and the indirect
effects of higher energy prices. Market-based indicators suggest that energy prices will stay high
for longer than previously expected but will moderate over the course of the projection horizon.
Price pressures stemming from global supply bottlenecks should also subside.
Labour market conditions have continued to improve, with unemployment falling to 6.8 per cent in
January. Even though labour shortages are affecting more and more sectors, wage growth
remains muted overall. Over time, the return of the economy to full capacity should support
somewhat faster growth in wages. Various measures of longer-term inflation expectations
derived from financial markets and from surveys stand at around two per cent. These factors will
also contribute further to underlying inflation and will help headline inflation to settle durably at our
two per cent target.
Risk assessment
The risks to the economic outlook have increased substantially with the Russian invasion of
Ukraine and are tilted to the downside. While risks relating to the pandemic have declined, the
war in Ukraine may have a stronger effect on economic sentiment and could worsen supply-side
constraints again. Persistently high energy costs, together with a loss of confidence, could drag
down demand more than expected and constrain consumption and investment.
The same factors are risks to the outlook for inflation, which are on the upside in the near term.
The war in Ukraine is a substantial upside risk, especially to energy prices. If price pressures
feed through into higher than anticipated wage rises or if there are adverse persistent supply-side
implications, inflation could also turn out to be higher over the medium term. However, if demand
were to weaken over the medium term, this could also lower pressures on prices.
Financial and monetary conditions
The Russian invasion of Ukraine has caused substantial volatility in financial markets. Following
the outbreak of the war, risk-free market interest rates have partially reversed the increase
observed since our February meeting and equity prices have fallen.
The financial sanctions against Russia, including the exclusion of some Russian banks from
SWIFT, have so far not caused severe strains in money markets or liquidity shortages in the
euro area banking system. Bank balance sheets remain healthy overall, owing to robust capital
positions and fewer non-performing loans. Banks are now as profitable as they were before the
pandemic.
Bank lending rates for firms have increased somewhat, while lending rates for household
mortgages remain steady at historically low levels. Lending flows to firms have declined after
increasing strongly in the last quarter of 2021. Lending to households is holding up, especially for
house purchases.
Conclusion
Summing up, the Russian invasion of Ukraine will negatively affect the euro area economy and
has significantly increased uncertainty. If the baseline of the staff projections materialises, the
economy should continue to rebound thanks to the declining impact of the pandemic and the
prospect of solid domestic demand and strong labour markets. Fiscal measures, including at the
European Union level, would also help to shield the economy. Based on our updated
assessment of the inflation outlook and taking into account the uncertain environment, we
revised our schedule for net asset purchases over the coming months and confirmed all our
other policy measures. We are very attentive to the prevailing uncertainties. The calibration of our
policies will remain data-dependent and reflect our evolving assessment of the outlook. We stand
ready to adjust all of our instruments to ensure that inflation stabilises at our two per cent target
over the medium term.
We are now ready to take your questions.