ECB: Private sector doesn’t expect eurozone stagflation


FRANKFURT – Private-sector forecasts suggest that stagflation in the eurozone is unlikely, the European Central Bank said in its economic bulletin Wednesday.

While latest projections see a significant downward adjustment to growth and upward revision to inflation, “current expert forecasts remain far from a stagflation scenario,” the ECB said.

Under the ECB’s definition, stagflation occurs when inflation expectations top the ECB’s 2 percent target while the economy stagnates or contracts — and both conditions hold for at least two years.

The real GDP growth forecast under the ECB’s Consensus Economics survey, however, remains above 2 percent, and only three forecasters expect growth below 1 percent for next year, the ECB points out. At the same time, most forecasters expect inflation to drop below 2 percent in the second half of 2023.

That said, uncertainty has increased, as has variance among forecasts, according to the ECB. This uncertainty has been reflected in recent forecasting history. This time last year, most experts similarly expected inflation to fall back below 2 percent at the end of 2022, and nobody saw inflation rates topping 8 percent.

Still, the ECB has been at pains to dismiss suggestions that the region may face a repeat of the stagflation that slammed economies in the 1970s. In particular, it has argued that the risk of a wage-price spiral has diminished despite the very tight labor market, as formal wage indexation schemes are less common and fewer workers are unionized.

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