The euro logo in front of the ECB headquarters in Frankfurt (Germany).

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SIPANY / SIPA

The European Central Bank is less pessimistic about the extent of the recession in the euro zone in 2020 but has slightly lowered its growth forecasts for 2021 and 2022, the president of the institution Christine Lagarde announced on Thursday.

ECB economists now expect a contraction of 8% of the currency area's GDP in 2020, against -8.7% previously expected, as well as a rebound of + 5.0% and +3.2 % in 2021 and 2022 against, respectively, 5.2% and 3.3% announced when the latest forecasts were published in June.

"The strength of the recovery subject to great uncertainties"

"The strength of the recovery remains subject to great uncertainties because it is very dependent on the future evolution of the pandemic and the success of the policies" put in place to combat it, explained Christine Lagarde during a press conference in line.

In general, “the data points to a strong rebound in GDP in the third quarter” after an unprecedented contraction for the period from April to June.

However, “the resurgence of infections during the summer months is a headwind,” she added.

The Monetary Institute has also largely maintained its inflation forecasts for the years 2020, 2021 and 2022. That is far from its objective of maintaining it "close to but below 2%".

"The appreciation of the euro" "closely watched"

The price increase is expected at 0.3% in 2020, 1.0% in 2021 and 1.3% in 2022, against respectively 0.3%, 0.8% and 1.3% in its previous forecasts in June.

In this regard, Christine Lagarde said that the ECB was carefully monitoring the level of the euro, the appreciation of which in recent months has helped to pull inflation down.

The rise of the euro, which has taken 10% against the dollar since May, was "widely debated" during the meeting of the board of governors of the institution, said Christine Lagarde.

The bank's mandate is to “maintain price stability” and “the appreciation of the euro is something to watch carefully,” she added.

At its monetary policy meeting, the ECB left its anti-crisis monetary policy unchanged: the governors kept rates low and confirmed massive debt buyback programs, including the emergency “PEPP” action by 1.350 billion euros by June 2021. "Given the current circumstances, it is very likely that the envelope will be used in its entirety," said Christine Lagarde.

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  • Christine Lagarde

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