Market: Some fiscal policies could fuel excessive demand, warns Lagarde
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BANGKOK (Reuters) – The president of the European Central Bank (ECB) warned on Friday that the fiscal policies of some European governments could fuel excessive demand.

Christine Lagarde also indicated that fiscal and monetary policies should be coordinated in order to ensure sustainable and balanced economic growth.

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“Fiscal policies that create excessive demand in an economy with limited supply could lead to more monetary policy tightening than necessary,” she told a conference in Bangkok, Thailand.

“Unfortunately, some of the tax measures put in place by some European countries, particularly in the euro zone, that we are currently examining seem to belong to the second category,” said Christine Lagarde, referring to measures that could fuel excessive demand.

The European Commission (EC) announced earlier this month that it expects activity to contract in the last quarter of this year and the first three months of 2023, mainly due to the war-induced spike in energy prices. in Ukraine.

“We need greater investment and structural reforms to remove supply-side constraints and ensure that production does not suffer from changes in the global economy. This is a big question and an uncertainty that we have”, explained Christine Lagarde.

“In a world where external demand is uncertain, we will also need to strengthen domestic supply and demand by boosting productivity,” she added.

“What we central bankers need to do is implement monetary policy that anchors expectations. We need to signal to the public, to observers, to commentators, that under all scenarios inflation will return to our medium-term objective in due time”, indicated the President of the ECB.

(Report Orathai Sriring and Stella Qiu, written by Ed Davies; Camille Raynaud)

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