ECB’s Lane Sees Strong Case for ‘Soft Landing’ of Economy, According to Reuters

FRANKFURT – Philip Lane, the chief economist of the European Central Bank (ECB), stated on Thursday that there remains a strong case for the eurozone economy to evade a recession despite a tightening credit environment.

Lending activity in the eurozone has slowed significantly as the ECB implements its most extensive and aggressive series of interest rate hikes to tackle persistent inflation.

Lane expressed confidence that the eurozone would not experience a credit crunch, noting that companies are not preparing for a downturn. "We remain fairly optimistic that this is not that type of episode," he remarked at an event in Ireland, adding that there is still a strong case for a soft landing scenario.

Recent data indicates that inflation in the eurozone is decreasing quickly, while the economy has begun to contract. This decline, coupled with a halt in credit creation, suggests that the ECB has likely concluded its series of rate increases, with the current key rate sitting at a historic high of 4%.

Addressing market speculation about possible rate cuts next year, Lane remarked that while 4% is not a permanent rate, it is also not a normal situation. Earlier on Thursday, ECB policymaker Klaas Knot commented that the current rates represent a good "cruising altitude" that could be maintained for some time.

Lane also highlighted that the slowing wage growth for new hires, as indicated by wage trackers, is a positive sign for achieving the ECB’s inflation target of 2% by 2025.

However, he raised concerns regarding a new energy shock, exacerbated by ongoing conflict in the Middle East. "A benign momentum dynamic in energy inflation has reversed in the last few months," Lane noted, pointing out that rising oil and gas prices are now coupled with the impact of the war.