ECB Rate Hikes Might Knock 3.8 Percent Off Euro Area Economy

On Monday, Bloomberg published an analysis showing that an aggressive rate hikes by the European Central Bank (ECB) can inflict an adverse impact on the economy of the euro area, and will trim 3.8 percent off from its economic output in 2024.

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The analysis said that the combination of high interest rates and limited government capacity to stimulate development poses a potential constraint on the economic growth of the euro area.

Given that governments in the euro area have or will opt out of the supportive measures which were put into place in the face of the surging energy prices over a year ago, the euro area economy can contract up to 5 percent in 2024.

The ECB has lifted key interest rates by a total of 425 basis points since last July in a bid to bring down inflation, which is hovering well above its target of 2 percent.

The central bank has refrained from pre-announcing another hike for its next rate-setting meeting, insisting that interest rates will remain its primary tool in the fight against inflation.

The ECB considered the euro area economy to be weak in the short run but said it would pick up momentum in the long run. The central bank will publish its latest edition of projections for inflation as well as economic growth in the euro area in September.

Meanwhile, the problems caused by the Ukrainian conflict quietly continue to take their toll on Europe. According to the latest official data available, German industrial production fell 1.5 percent in June from May and 1.7 percent year-on-year. These figures were worse than expected and put downward pressure on the value of the euro.