The eurozone economy is still recovering, but it is facing a new challenge from an increase in coronavirus cases and a new variant, according to two European Central Bank policymakers on Friday.
On Friday, global authorities and investors reacted with concern to the discovery of a new coronavirus variant in South Africa, with the European Union and the United Kingdom among those tightening border controls as researchers sought to determine whether the mutation was vaccine-resistant.
Ignazio Visco and Luis de Guindos, policymakers at the European Central Bank, said the pandemic was once again a source of concern.
“Uncertainty remains high, mainly reflecting a health situation that has once again become a source of considerable concern,” Visco, the Bank of Italy’s governor, said at an event.
On Friday, stock markets fell sharply, and investors retreated from rate hike bets, fearful that the new variant would be able to evade immune responses and become more transmissible.
The ECB has indicated that there will be no rate hikes next year, but it is widely expected to end its 1.85 trillion-euro ($2.1 trillion) Pandemic Emergency Purchase Programme (PEPP) in March.
According to Visco, the recent increase in the number of infections in Europe and other countries has pushed back "the post-COVID perspective."
The ECB's vice-president, De Guindos, acknowledged the new variant's challenges, as well as rising cases and supply bottlenecks, but struck a more optimistic tone. “We’ve got a differentiating factor, which is vaccination,” de Guindos told an event in Spain. “Therefore I think the effect on the economy is going to be more limited, I’m relatively optimistic.”
He added the economy had shown an ability to adjust to the pandemic and predicted the economy would grow by around 5% this year and strongly next year too.