By Laurie Laird
LONDON (MaceNews) – The eurozone economy could shrink by as much as 10% this year, according to the European Central Bank president, a more shallow contraction than envisioned under the bank’s most severe forecast scenario.
Addressing an online European youth event, Christine Lagarde predicted the eurozone will suffer a downturn “about double” the 4-5% slump recorded during the financial crisis, falling “somewhere between the [ECB’s] medium and severe scenarios.”
That suggests a somewhat more optimistic outlook from the central bank. Last week, the ECB chief economist Philip Lane spoke only of the severe scenario, under which eurozone output declines by slightly more than 12% this year. The medium scenario envisions a decline of 8%, while output would fall by 5% under a “mild” scenario, although the latter forecast is “already outdated,” said Lagarde.
Her comments come a day after Bank of England Chief Economist Andy Haldane also suggested the UK may also dodge the most dire initial forecasts of coronavirus-related economic disruption, telling a webinar of a “modest recovery in recent consumer spending.”
Like many central bankers, Lagarde downplayed worries over the unprecedented fiscal spending deployed by eurozone economies. “Fiscal measures had to be taken, come what may … The use of debt is the way to go.” Since taking over the presidency of the ECB last autumn, Lagarde has repeatedly called for greater government spending to support a eurozone economy that was already slowing ahead of the pandemic-related shock.