ECB Governing Council member Olli Rehn highlighted growing concerns about Eurozone’s economic outlook, stating that the “recent increase in negative growth risks” has strengthened the case for a rate cut at the next monetary policy meeting in September, assuming disinflation remains on course.
Rehn acknowledged that while inflation is expected to continue its path towards the 2% target, the journey is likely to be “bumpy” throughout the year. The real challenge, however, lies in the growth outlook.
He pointed out that there are still “no clear signs of a pick-up in the manufacturing sector,” despite the fading impact of high energy costs that had previously weighed on the sector.
Rehn further cautioned that if investments in the manufacturing sector fail to recover and growth continues to rely heavily on the services sector, the “projected pick-up in productivity growth may be jeopardized.”
He also warned that the slowdown in industrial production “may not be as temporary as assumed,” suggesting that Eurozone could face prolonged economic challenges if the manufacturing sector does not regain momentum.
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