FRANKFURT (Reuters) – Euro zone economic growth will remain weak in the near term due to weakening services and the labor market, but the bloc is unlikely to relax countercyclical banking buffers to help banks negotiate the period , according to Luis de Guindos, vice-president of the European Central Bank (ECB).
Some of the largest eurozone countries have implemented countercyclical capital buffers, which require banks to set aside capital when economic conditions are good, which can then be released when the economic cycle turns.
“Macroprudential authorities should preserve releasable capital reserves to ensure that they are available in case conditions in the banking sector deteriorate,” Luis de Guindos said in a speech on Monday.
Germany and France have both introduced such cushions this year and France plans to increase them from the start of next year, while the Netherlands has announced plans to double them next May.
The fact that the eurozone economy has stagnated in 2023 and that any recovery next year is expected to be limited may be a source of concern.
“The slowdown in industrial activity is having an impact on services,” said Luis de Guindos. “The eurozone economy is likely to remain weak in the short term.”
Even the job market has started to show signs of weakening, he added.
The economic woes come as the ECB raised interest rates to a record high with ten consecutive rate hikes, hoping to slow consumer demand and bring inflation back to its 2% target. .
With inflation now below 3%, Luis de Guindos said it was expected to rise again in the coming months, although the general trend of disinflation would continue in the medium term.
Regarding the rate outlook, the vice president said the ECB would have more information in December “to reassess the inflation outlook and the required economic policy measures.”
He also reiterated the bank’s guidance, which insists that interest rates maintained at their current level “for a sufficiently long period of time” will play a “substantial” role in reducing inflation.
(Reporting by Balazs Koranyi and Francesco Canepa, Corentin Chappron, editing by Kate Entringer)
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