The vice president of the European Central Bank (ECB), Luis de Guindos, highlighted this Wednesday in Madrid the effectiveness of interest rate increases to combat inflation, but, far from complacency, he has warned of their effects on activity. The euro zone, he has indicated, may have entered a “technical recession” and Spain must, like the rest of the participants in the common currency, strictly comply with the fiscal rules.
During Spain Investors Day, the former Minister of Economy also alluded to the “disappointing” growth of the global economy at the end of last year and the “economic contraction” in the euro zone in the last quarter. There are also “the first signs of correction in the labor market, with a slight decrease in the fourth quarter”, he has warned.
From the point of view of economic policy, these messages of uncertainty regarding economic developments are an indication that increases in interest rates to 4.5% are affecting activity and reinforce the idea that the trend would be maintain the current level or lower it throughout this year.
This 2024 will not only be marked by the withdrawal of the ECB as a buyer of public debt, but also by the return to compliance with fiscal rules after the exceptions in the years of the pandemic. “It is crucial that it is implemented appropriately and without delays,” said the ECB vice president.
The reform of fiscal rules, he indicated, also sends a “powerful” signal to the markets about the countries’ commitment to containing the public deficit and curbing the debt. Guindos has also been in favor of combining reforms with investments.
The prospects, he added, are now “weak” and respond to a “generalized” economic slowdown. In any case, inflation “has already peaked” and the “disinflation process” has accelerated, registering “a substantial drop” last year.
