Supply chain issues, high energy prices challenge recovery: ECB

Real GDP expected to surpass pre-pandemic levels in 4th quarter, central bank says

Supply chain pressures and rising energy prices challenge economic recovery and inflation outlook, the European Central Bank (ECB) said in a report on Wednesday.

“Recent strains in global supply chains and the spike in energy prices could have longer-lasting effects on inflation than expected and weigh on the economic recovery,” said the Financial Stability Review for November.

“Supply chain disruptions and surging oil, gas and electricity prices have resulted in rising global inflationary pressures, which could be amplified by unequal vaccination levels,” it added.

The central bank said vaccination progress has helped to balance the risks to the economic recovery in the euro area, but some downside risks remain.

Some of those were listed as fragility in certain sectors that are heavily impacted by the pandemic,vulnerabilities in risky assets, and high indebtedness.

The ECB said it expects real gross domestic product (GDP) to surpass its pre-pandemic levels in the fourth quarter of 2021 two quarters earlier than its previous estimate made at the beginning of this year.

“However, debt servicing needs remain elevated, with some euro area countries facing refinancing and interest expenditure in excess of 40% of GDP over the next two years,” the report noted.


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