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Europe’s economy is said to face severe impacts from war and inflation.

Concerns about the future of the economy are particularly stark in Germany, Europe’s largest economy, because of its heavy reliance on Russian energy. Late last month, economic advisers to the German government said the outlook had “worsened sharply” because of the war, with a heightened risk of recession looming alongside high inflation rates.

Still, pressure is being heaped on the central bank to take more action against inflation, and traders are betting interest rates will rise before the end of the year. This month, after the eurozone inflation data turned out to be higher than expected, Joachim Nagel, the president of the Bundesbank in Germany, said monetary policy “should not pass up the opportunity for timely countermeasures.”

At the European Central Bank’s meeting in March, policymakers said they would seek to end the bank’s bond-buying program in the third quarter, a prerequisite to raising interest rates. On Thursday, the bank reinforced this intention.

Interest rates will increase “sometime after” the expansion of the bond buying stopped, which could be weeks or several months, Ms. Lagarde said. And the increases will be gradual.

“The E.C.B.’s hesitant stance despite high inflation is risky,” Jörg Krämer, the chief economist at Commerzbank in Frankfurt, wrote in a note to clients. “Inflation expectations, and thus inflation, can rise even if the economy performs poorly.”

Mr. Krämer forecasts that the central bank will begin raising interest rates in the third quarter, as long as there is no energy crisis or recession, which could be brought about by an oil and gas embargo on imports from Russia.

The euro fell about 1 percent, to a two-year low against the U.S. dollar, during Ms. Lagarde’s news conference.

Source: New York Times

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