The situation of the current energy crisis in parallel with the economic recovery resulting from the health crisis related to Covid-19, continue to affect the global economic situation, and particularly the European situation given the evolution of the inflation rate.
According to Eurostat, the annual inflation rate in the European Union exceeded 10% last month, compared to 3.2% in 2021.
This rather alarming and continuous evolution since the beginning of September of the current year, has generated a quick reaction from the ECB in order to channel this growth.
The decision to “raise interest rates further in order to dampen demand” as well as “to guard against the risk of a persistent upward shift in inflation expectations” came out of the meeting of the Governing Council members dealing with the interest rate increase. This announcement informs the new guidelines of this central bank’s monetary policy statement.
Is Europe really facing an economic slowdown or rather a threat of recession?
These decisions taken by the ECB certainly have a considerable impact on the internal fiscal policies of the member countries, since it is not easy to adapt to such increases in interest rates of credits, due to the current economic challenges faced by the European zone, although they try to support businesses on the one hand and the purchasing power of consumers on the other.
Thus, the repercussions are reflected in the increase in interest rates for the main financing operations, the marginal lending facility and the deposit facility will rise to 2%, 2.25% and 1.5%respectively, counting from 2 November 2022.
The problem today concerns the near future of companies in ” over-indebted ” countries which will certainly have difficulties in overcoming their inability to adapt to this economic climate.
This situation may eventually lead to job losses and thus an increase in the unemployment rate.
Indeed, the Governing Council has set the objective of lowering the inflation rate to 2% for the “medium term” in order to maintain price stability for all member countries.