Mário Centeno warns of stagflation in Europe

The Governor of the Bank of Portugal, Mário Centeno, has admitted that the Euro Zone could face a period of stagflation and high interest rates as a result of the invasion of Ukraine.

Mário Centeno, the Portuguese central bank governor, told Bloomberg: “I am convinced that the economic growth we have seen will be maintained.

Nevertheless, a scenario close to stagflation is not beyond the realm of possibilities that we could face, and we will need to adjust our policies for this.”

Stagflation is characterised by slow economic growth and relatively high unemployment – or economic stagnation – which is at the same time accompanied by rising prices (i.e. inflation). Stagflation can be alternatively defined as a period of inflation combined with a decline in the gross domestic product (GDP).

Centeno says that ECB signals made recently that the EU’s monetary policy is getting back to normal were “favourable”, but recognises that the impact of the war in Ukraine has created enormous uncertainty in relation to the next decisions from the European central bank which will meet on March 10.

The central bank has been under pressure to tighten monetary policy to slow rising prices in the euro zone which has seen inflation rise to 5%, a historic maximum since the introduction of the single currency.

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