ECB sees some risks to outlook from fresh pandemic wave

FILE PHOTO: FILE PHOTO: ECB headquarters in Frankfurt
FILE PHOTO: The headquarters of the European Central Bank (ECB) are pictured in Frankfurt, Germany, July 8, 2020. REUTERS/Ralph Orlowski/File Photo/File Photo

July 22, 2021

FRANKFURT (Reuters) – A fresh wave of the coronavirus pandemic could pose a risk to the euro zone’s economic recovery, European Central Bank President Christine Lagarde said on Thursday, after the bank hinted at an even longer period of monetary support.

The Delta variant, a more contagious strand of the coronavirus, is becoming dominant in Europe, causing a resurgence of cases even in countries with relatively high vaccination rates.

The ECB still considers risks to the economy “broadly balanced”, Lagarde told a news conference, although the outlook continues to depend on the course of the pandemic and the progress of vaccination programmes across Europe.

“The reopening of large parts of the economy is supporting a vigorous bounce-back in the services sector. But the Delta variant of the coronavirus could dampen this recovery in services especially, in tourism and hospitality,” Lagarde said.

The ECB said at its June 10 meeting that it now saw risks to growth as “broadly balanced”, rather than tilted to the downside. Some policymakers even argued that the bank was underestimating how quickly the bloc would recover through the summer months as COVID-19 restrictions were lifted.

Lagarde said the ECB’s staff economic forecasts, unveiled at that June meeting, had included an assumption that some measures to contain the coronavirus would continue through the third and fourth quarters of 2021. Governments and citizens had become better able to cope with the pandemic during its successive waves, she added.

A fresh wave of coronavirus infections could potentially prolong the ECB’s emergency stimulus measures, which are due to end next March.

The ECB has long said that the 1.85 trillion euro Pandemic Emergency Purchase Programme will run as long as there is an emergency and with less than half of euro zone citizens fully vaccinated, the bloc appears especially at risk.

(Reporting by Balazs Koranyi; Editing by Catherine Evans)