FRANKFURT (Reuters) – The euro zone could have slipped into recession in the last quarter of 2023, while the short-term economic outlook remains gloomy, two European Central Bank (ECB) officials said on Wednesday, although they continue to argue for a status quo on interest rates.

Growth in the currency bloc has hovered around zero for most of 2023 and for this year, only a modest recovery is expected under the effect of ongoing monetary tightening which has helped bring down inflation, even if it remains twice as high as the ECB’s objective.

“It appears that sentiment indicators are bottoming out, but the short-term economic outlook remains weak, in line with our forecasts,” Isabel Schnabel, a member of the board of governors of the ECB.

ECB Vice-President Luis de Guindos, for his part, suggested that the euro zone could have registered a recession in the second half of 2023 and that growth prospects were on a downward trend.

“Poor indicators suggest an economic contraction in December, which confirms the possibility of a technical recession in the second half of 2023 and a weak economic outlook in the short term,” he said in Madrid.

“Upcoming data indicates that the future remains uncertain and the outlook is skewed downward,” he added.

Luis de Guindos noted that economic weakness was broad-based, with construction and manufacturing particularly hard hit and services likely to slow in the coming months.

On the monetary policy side, the ECB announced that it planned to maintain a status quo on rates in January and neither of the two central bank officials moved away from this message, even if Isabel Schnabel seemed to temper the markets’ bets on rapid declines. rate during the year. In particular, she considered it premature to talk about a reduction in the cost of credit.

Investors have forecast at least five ECB rate cuts this year, with the first coming in March or April, a timetable that several ECB officials considered too optimistic given persistent price pressures.

Luis de Guindos reiterated the ECB’s guidance that a deposit rate of 4.0%, maintained for a “sufficiently long period”, would help return price growth to the 2% target in 2025.

Inflation fell rapidly in 2023, but rose to 2.9% last month, mainly due to technical factors, and could remain around this level for some time.

“Energy-related base effects will be felt and measures to compensate for energy prices are expected to end, leading to a transitory resumption of inflation,” explained Luis de Guindos.

(Report by Balazs Koranyi and Francesco Canepa, Corentin Chappron and Claude Chendjou, edited by Blandine Hénault)

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