Rising Optimism for Soft Landing... Lagarde Says "Mild Contraction Rather Than Recession"

Lagarde ECB President "Will Be Much Better Than Feared"
Monetary Tightening Policy to Continue for the Time Being
Bailey BOE Governor "Energy Price Drop... Easier Path to Inflation Escape Opened"

[Asia Economy Reporter Kwon Haeyoung] Christine Lagarde, President of the European Central Bank (ECB), stated on the 19th (local time) that "the economic outlook for this year is not bright, but it will be much better than what we feared." Andrew Bailey, Governor of the Bank of England (BOE), also mentioned that "inflation has turned the corner." Although European inflation remains high, making it difficult to pinpoint the end of monetary tightening, a cautiously optimistic view is emerging that the global economy is passing through the worst, contrary to initial concerns.

[Image source=Yonhap News]

President Lagarde attended a panel discussion at the World Economic Forum Annual Meeting (WEF, Davos Forum) on the same day and said, "Much more positive news has come out in recent weeks," forecasting that "the European economy is more likely to experience a mild contraction rather than a recession." In particular, she predicted that Germany, a major European economy, could avoid a recession this year.

However, she made it clear that the monetary tightening stance would continue for the time being. President Lagarde said, "Inflation is too high," and added, "We will remain in this (monetary tightening) process to bring inflation back to 2% at the appropriate time." Regarding some expectations that the ECB might ease its rate hike stance, she drew a line, saying, "Financial markets will have to adjust their positions."

Lagarde’s more optimistic outlook on the European economy is interpreted as being due to the gradual stabilization of energy prices. The Eurozone's Consumer Price Index (CPI) in December last year rose 9.2% compared to a year earlier, a slowdown from the previous month’s 10.1%. Especially, the energy price increase sharply slowed from 34.9% in November to 25.5% in December, raising hopes that inflation has peaked.

Andrew Bailey, Governor of the Bank of England (BOE), also said in an interview with the British daily Western Mail on the same day, "The recent drop in energy prices has opened an easier path out of the inflation crisis." This follows the UK’s consumer price inflation rate slowing from 10.7% in November last year to 10.5% in December. He said, "This is the beginning of a signal that (inflation) has turned the corner," and added, "It means that optimism has increased that we can navigate next year on an easier path."

Like President Lagarde, Governor Bailey did not suggest the possibility of ending rate hikes. The Financial Times (FT) interpreted this as "indicating that if energy prices fall below market expectations, the BOE could end its rate hike cycle early."

Meanwhile, at Davos, a cautiously optimistic view is spreading that the global economy will pass through the dark tunnel this year. Kristalina Georgieva, Managing Director of the International Monetary Fund (IMF), said, "The global economy will hit bottom and pass the low point this year," and added, "We can expect the rebound we anticipated next year."

This content was produced with the assistance of AI translation services.