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ECB's Guindos Remains Optimistic About Substantial Economic Transmission

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ECB's Guindos Anticipates Substantial Economic Transmission

According to Vice President Luis de Guindos, a significant portion of the European Central Bank's (ECB) interest-rate hikes is yet to be fully felt in the economy. While the transmission of monetary-policy tightening to financing conditions is progressing, the impact on the real economy is proceeding at a slower pace. Guindos stated that there is still a substantial share of the transmission process that is expected to materialize throughout this year and beyond. These remarks suggest that the ECB's deposit rate may not be raised further from its current level of 4%. However, ECB officials maintain that borrowing costs need to remain elevated to ensure inflation returns to the target of 2%.

Economic Outlook and Inflation

The recent outlook for the 20-nation economy has become less optimistic, with minimal growth expected in the second half of the year. Inflation has also slowed, with the core measure reaching a one-year low. Despite this, underlying price pressures remain strong, and Guindos attributes the easing of inflation to factors such as aligned aggregate demand and supply, as well as lower energy prices.

ECB's Stance on Borrowing Costs

ECB President Christine Lagarde has reiterated that borrowing costs will be maintained at sufficiently restrictive levels for as long as necessary. This suggests that the ECB will continue to monitor economic conditions and adjust its policies accordingly. In conclusion, the ECB's Vice President Guindos anticipates a substantial transmission of monetary-policy tightening to the economy. The ECB remains committed to its stance on borrowing costs and aims to ensure inflation returns to its target.

The Impact of ECB's Economic Transmission on New Businesses

The European Central Bank's (ECB) anticipated substantial economic transmission, as outlined by Vice President Luis de Guindos, could have significant implications for new businesses. The yet-to-be-felt impact of the ECB's interest-rate hikes on the real economy suggests a slower pace of economic growth, which could pose challenges for new businesses in terms of financing and market stability.

Uncertain Economic Outlook

The less optimistic outlook for the 20-nation economy, coupled with slowed inflation, could create an uncertain environment for new businesses. Minimal growth expected in the second half of the year might lead to reduced consumer spending, affecting businesses across various sectors.

Borrowing Costs and Inflation

The ECB's stance on maintaining elevated borrowing costs to ensure inflation returns to the target of 2% could increase the cost of capital for new businesses. This could potentially limit their ability to invest in growth and expansion.
Adapting to Economic Conditions
In light of these developments, new businesses need to be agile and adaptable. They should closely monitor economic conditions and adjust their strategies accordingly. This might involve exploring alternative financing options or focusing on cost efficiency. In conclusion, while the ECB's anticipated economic transmission presents certain challenges, it also underscores the importance of adaptability and strategic planning for new businesses.
Story First Published at: https://financialpost.com/pmn/business-pmn/ecbs-guindos-still-sees-substantial-transmission-to-economy
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