May 26, 2023
ECB’s Lane Sees Services Driving Growth Despite German Recession
(Bloomberg) -- European Central Bank Chief Economist Philip Lane said the continent’s services sector will help fuel economic growth — even as Germany endures a recession.
“Germany, as the big manufacturing center, is suffering from the slowdown in manufacturing,” Lane told Croatia’s Nova TV in an interview aired Friday. “But when you take all of the euro area, the services sector is very big and we do think the services sector will grow this year.”
Germany — Europe’s largest economy — suffered a winter downturn as households facing steep energy bills cut back and factories struggled amid a shift in consumer spending from goods to leisure and travel.
While that trend may actually help underpin output for the wider euro zone, it comes with consequences — namely an additional spur for inflation that remains elevated even after its war-induced spike abated.
The ECB has raised interest rates steeply already and, while pondering the end of its unprecedented monetary-tightening campaign, still plans further hikes.
“There’s still I’m afraid significant inflation right now — especially in food and in services,” said Lane, who didn’t discuss borrowing costs. “But we do think later this year, after the summer, there’ll be further progress toward lower inflation.”
Another driver of prices identified by the ECB has been swelling corporate profit margins that have squeezed citizens across the 20-nation bloc as selling prices were lifted. But there could be a re-balancing in 2023, according to Lane.
“When we have these inflation episodes, in some years profits will rise more quickly; in other years wages will rise more quickly,” he said. “And we do think this year that wages will rise more quickly than profits.”
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