“Economy is clouding over”
Wirtschaftsweiser recommends ECB to pause interest rates
7/9/2023 5:28 p.m
The European Central Bank has raised interest rates eight times in a row, and there is no end in sight to the series. The economist Truger fears that the currency watchdogs were too hesitant at first and are now going to the other extreme.
The “economic wise man” Achim Truger sees growing risks for the economy in the euro zone in view of the ECB’s interest rate policy. The economy in the euro area is already clouding over significantly, Truger said in an interview with “Münchner Merkur”. He also views the economic development in Germany with growing skepticism. The interest rate hikes by the central bank took effect with a significant delay. So far there has been no effect. “It’s risky to saddle up there,” said the member of the Advisory Council on the assessment of overall economic development. Therefore, an interest rate pause is appropriate. After the central bank “probably hesitated too long and acted loosely at the beginning of the inflation, it shouldn’t go to the other extreme now,” warned Truger.
With a series of eight interest rate hikes since the summer of 2022, the monetary authorities are trying to get inflation under control. Because the currency devaluation robs people of their purchasing power. Higher interest rates, on the other hand, make loans more expensive. For the next interest rate decision on July 27, the President of the European Central Bank (ECB), Christine Lagarde, announced a further increase.
“Economy: Looks like a minus”
The Council of Economic Experts will prepare a new economic forecast in autumn, but “at the moment it is clearly looking like a minus,” said Truger. Much worse than the specific number is that German economic output is still below the pre-crisis level of 2019. For 2024, too, there are only signs of a tentative recovery. The Council of Economic Experts advises politicians. The women and men in the body are colloquially referred to as “Wirtschaftswise”.
The Bundesbank expects the German economy to contract by 0.3 percent this year. In the winter half-year, the German economy slipped into a “technical recession” with two negative quarters in a row. According to the latest ECB forecast, the economy in the euro area will grow by 0.9 percent this year.