Eurozone economy likely contracted in Q4, ECB's Lagarde says

  • Eurozone output likely contracted in Q4 2020 and the resurgence of COVID-19 poses downside risks to the short-term economic outlook, said European Central Bank President Christine Lagarde in her introductory statement for her post-policy decision press conference.
  • The central bank stuck to its ultra-accommodative policy, keeping rates unchanged and continuing with asset purchases.
  • "Inflation remains very low in the context of weak demand and significant slack in labor and product markets," she said, adding that the incoming data confirms the ECB's baseline assessment of pronounced near-term impact of the pandemic on the economy and protracted weakness in inflation.
  • She stressed that "ample monetary stimulus remains essential to preserve favorable financing conditions over the pandemic period for all sectors of the economy."
  • The central bank will continue to monitor developments in the exchange rate for its possible implications for medium-term inflation.
  • She repeats that the euro area real GDP sharply contracted in H1 2020 then rebounded by 12.4% Q/Q in Q3. Incoming data, though suggest that activity declined in Q4 and that the pandemic will weigh on activity in Q1.
  • While the rollout of vaccines will help to increase confidence, it will take time until widespread immunity is achieved. In the meanwhile, "further adverse developments related to the pandemic cannot be ruled out," she said.
  • "Overall, the risks surrounding the euro area growth outlook remain tilted to the downside but less pronounced."
  • The euro is up 0.3% against the U.S. dollar; Invesco CurrencyShares Euro Trust ETF (NYSEARCA:FXE) gains 0.4% in premarket trading.

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