The Eurozone could soon enter into a mild technical recession following two consecutive months of economic contraction, ECB Vice-President Luis de Guindos warned on Wednesday.
In a press conference held at the Frankfurt-based EU institution, the EPP Spanish politician from the popular party warned of an increased risk to financial stability when presenting the ECB’s half-yearly financial stability report, EURACTIV’s partner EFE reported.
A technical recession occurs after two consecutive quarters of negative growth in real GDP. “People and businesses are already feeling the impact of rising inflation and the slowdown in economic activity,” de Guindos said.
“Our analysis is that risks to financial stability have increased, while a technical recession in the euro area is more likely,” the ECB Vice-president explained.
“At the same time, financial conditions have tightened as central banks act to control inflation,” he warned. The ECB began raising its interest rates in July. They stand now at 2% but will be raised further, experts predicted.
Indebted households, companies and governments in the Eurozone are the ones most exposed to financial risks if interest rates continue to climb.
Financial markets are also at risk, in particular some investment funds. The problems could appear simultaneously and reinforce each other, the ECB warned.
Companies in the EU also face more challenges “due to higher energy prices and other input costs” and their profits will fall as financing costs rise. “If the outlook deteriorates further, an increase in the frequency of corporate defaults, especially for energy-intensive firms, cannot be ruled out,” the ECB warned.
(Arantxa Iñiguez | EFE)
Source: euractiv.com
