Here are the ECB staff forecasts for inflation:
- 2022 8.1% vs 6.8% prior
- 2023 5.5% vs 3.5% prior
- 2024 2.3% vs 2.1% prior
GDP
- 2022 3.1% vs 2.8% prior
- 2023 0.9% vs 2.1% prior
- 2024 1.9% vs 2.1% prior
It's notable that inflation returns close to target in 2024 but what that doesn't say is how high rates will need to be to get there. The forecast clearly incorporates more rate hikes, which the ECB is forecasting "over the next several meetings."
In that context, next year's growth is seen at +0.9%, which is certainly better than the negative number I'm penciling in. That said, there are signs that governments are willing to spend more to cushion the energy blow.
I think the big question coming out of this statement -- which is hawkish -- is whether higher rates will not only crush inflation but also send the eurozone into a deep recession that's laden with more government debt.
