Christine Lagarde, President of the European Central Bank, believes that the world may have been through the worst of the coronavirus crisis, but said it is unlikely to return to the status quo.
Speaking during the Northern Light Summit online on Friday, he said: “We have probably passed the low point and I am saying this with some concern because of course there could be a second wave.”
The ECB has estimated that gross domestic product in the euro area fell by 16% in the first two quarters of 2020. However, the central bank expects growth to pick up in the coming months as the economies of the Euro zone. After a 8.7% contraction for all of 2020, the central bank predicts a rebound of 5.2% in 2021 and 3.3% in 2022.
We need to be extremely vigilant towards the most vulnerable.
Christine Lagarde
President of the ECB
Lagarde warned that the recovery “will be incomplete and could be transformative,” reiterating that the world will not be the same after the pandemic.
Some business models will struggle to survive and adapt to the new world, while other companies will be created to address a changed reality, he said. In a world where proximity could take over, Lagarde said “trade is likely to drop significantly.”
“We need to be extremely vigilant to those who are most vulnerable,” he added.
The European Central Bank announced earlier this month an expansion in size and duration of its emergency bond purchase program. The central bank has promised to buy 1.35 trillion euros in public debt until at least June 2021.
The minutes of the meeting released on Thursday showed that the ECB debated the effectiveness of its monetary policy, in an attempt to address concerns raised by the German constitutional court, which ruled in May that some aspects of the ECB’s policy were not legal.
Policymakers said at their meeting that “there was ample evidence that the euro area economy would have fared much worse without the political stimulus of asset purchases.”
Speaking on Friday, Lagarde added that “central banks have responded massively to the challenge. I have no doubt that we need to use all available tools.”
Fiscal stimulus
To tackle the economic crisis, European leaders are negotiating a new fiscal stimulus based on a proposal presented by the European Commission in May to raise € 750 billion from public markets. The original plan is to distribute $ 500 billion in grants and $ 250 billion in loans.
However, there are deep divisions among member states over this plan. They must negotiate it once again on July 17 at a physical meeting in Brussels, Belgium.
Lagarde said Friday that he does not believe there will be a final agreement at the summit and that more negotiations will take place before a new fiscal stimulus is implemented.
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