“While governments will partially ‘foot the bill’, there are limits to what extent the private sector can be shielded from this income shock,” said Dirk Schumacher with Natixis in a research note to clients.
“The drop in consumer confidence to a record low over the last months indicates that households are aware of these limits with respect to government support. There is also increasing evidence that companies in energy-intensive sectors are reducing production.”
Because of the inflation outlook, the ECB is expected to sacrifice growth to keep inflation expectations anchored, as this is the bank’s core mandate.
“A key take away from recent comments by ECB officials is that the hiking cycle will be less sensitive to recession than we thought,” said Deutsche Bank’s Chief Economist Mark Wall in a research note.
