Lagarde Says Euro-Zone Economy Shrank at End of Last Year

(Bloomberg) -- European Central Bank President Christine Lagarde said the euro-zone economy probably contracted at the end of last year, meaning that the bloc now looks headed for a double-dip recession.

Economists are increasingly predicting that output will shrink this quarter as well, as governments toughen restrictions on travel, leisure and non-essential shops to combat infections.

While Lagarde said that the risks to the outlook are tilted to the downside, she gave no indication in a virtual press conference that the central bank is planning to step up its monetary stimulus. She reeled off a list of “positives” including the rollout of vaccines, the approval of the European Union’s recovery fund, a pickup in manufacturing, and the removal of political uncertainty in the U.S.

Read more: Euro Rises to One-Week High on Hint of ECB Easing Life Support

Policy makers earlier decided to keep their current stimulus unchanged, betting that a boost that was announced only last month will prove sufficient to carry the euro-zone economy through the crisis.

“Risks surrounding the euro-area growth outlook remain tilted to the downside, but less pronounced,” Lagarde said. “The roll-out of vaccines, which started in late December, allows for greater confidence in the resolution of the health crisis.”

The president described economic projections that the ECB published six weeks ago, which foresee economic growth of 3.9% this year, as “broadly valid.” Fourth-quarter figures on gross domestic product will be published around the end of this month.

She reiterated that the emergency bond-buying program “need not be used in full” if financing conditions can be kept at current levels without doing so. That was a concession to more cautious members at the previous meeting. Most economists surveyed by Bloomberg say the central bank will ultimately spend the full amount, but it won’t need to top up the program again.

Policy makers didn’t discuss exchange rates or the pace of asset purchases in detail, according to officials familiar with the matter, asking not to be identified discussing confidential deliberations.

They did talk about longer-term options for their policy instruments, including the potential to merge their pandemic program and an older bond-buying plan as well as yield curve control, the people said.

That part of the meeting was held as part of a wide-ranging strategic review that is looking at topics from the inflation goal to how the institution can help tackle climate change. An ECB spokesman declined to comment.

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