Euro area navigating atypical recovery: ECB head

Christine Lagarde says pandemic-driven structural changes to have implications on future inflation dynamics.

Euro area navigating atypical recovery: ECB head

The head of the European Central Bank (ECB) has said that the bloc's economy was back from the brink, but not completely out of the woods after the fallout caused by the coronavirus outbreak.

Speaking at the 2021 ECB Central Banking Forum, held late on Wednesday via video conference, Christine Lagarde said the economy was recovering rapidly and would reach pre-pandemic levels by the end of the year.

Following a highly unusual recession, she said, the euro area was going through a similarly atypical recovery.

She emphasized that uncertainties threatening growth still continued and said there had been supply chain bottlenecks and interruptions over the past several months.

Noting that further bottlenecks were on the bank's "radar," Lagarde said the cuts in question had slowed exports of many EU member countries

"And while the robust recovery is supporting underlying inflation trends, what we are seeing now is mostly a phase of temporary inflation linked to reopening. Structural changes could create both upward and downward pressures on prices," said the ECB chief.

With the eurozone in an energy-importing position, Lagarde explained, the increase in energy prices has been caused by natural gas, electricity, and oil.

Noting that the prices of energy products had dropped significantly last year, she said the recent price rises were due to the "base" effect.

The ECB expects energy prices to fall in the first part of 2022, with another source of uncertainty being the repetition of measures and shutdowns with the new pandemic wave.