Investing.com – According to the latest Reuters survey, although inflation in the euro zone has increased fivefold, the economy in the region is almost certain to fall into recession, but next week (December 15) is expected to raise the deposit rate by 50 basis points to 2.00%.
Bank deposit yields will hit 2.00 percent after a meeting of policymakers on Thursday, the highest since 2009, while refinancing rates will also be raised by 50 basis points to 2.50 percent, according to a Dec. 5-8 Reuters poll. It should be noted that the ECB has been raising interest rates at the fastest pace on record and has raised the key deposit rate by 200 basis points to 1.50% since it began its campaign to combat inflation in July.
Of 60 economists surveyed, 51 held the median view on deposit rates, with two saying the ECB would be more cautious and seven saying it would be more aggressive.
At its last meeting, ECB President Christine Lagarde said a plan would be drawn up this month to reduce its bond holdings under asset purchases. The poll showed that the bank will cut 175 billion euros in equity next year, out of expectations of between 75 billion and 600 billion euros.
However, prices rose 10.0% year-on-year last month, far below expectations, suggesting that inflation may have peaked in the 19-nation euro zone, which also provided a reason for the ECB to slow the pace of rate hikes.
In any case, policymakers face the dilemma of tightening policy as the euro zone slips into recession. The median number of respondents to the Reuters poll was 80%.
Quarterly forecasts from the survey showed the economy contracting 0.3% this quarter and 0.4% next quarter, meeting the technical definition of a recession. It will then be flat in the second quarter and grow 0.3% in the last two quarters of 2023. Meanwhile, when asked what type of recession the euro zone would experience, the vast majority of respondents said it would be short-term and mild, although 20 of 30 economists warned that their growth forecasts were at risk to the downside .
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(Editor: Li Shanwen)