Stagflation is the biggest risk for the recovery in Europe

Stagflation is the biggest risk for the recovery in Europe

Former Italian Prime Minister Mario Monti told CNBC on Saturday he believed the biggest threat to Europe’s economic recovery from the coronavirus pandemic was “inflation”.

Monti, now president of Bocconi University in Italy, said the “huge bulk” of liberal monetary policy, fueled by fiscal stimulus from central banks and governments to support economies amid the pandemic coronavirus, “may well trigger more inflation.” can put.”

At the same time, Monti said there were “many constraints on the flexibility of production” to develop.

Stagflation is commonly thought to occur when the inflation rate is high but economic growth slows down and unemployment rises.

The IHS Markit Flash Composite Eurozone Purchasing Managers Index, which examines activity in manufacturing and services, hit a two-month low of 59.5 in August, down from 60.2 in July. Readings above 50 still represent an expansion in economic activity, but several economists have suggested that momentum in the region may slow.

Former Italian Prime Minister Mario Monti is seen at “Porta a Porta” on October 11, 2018 in Rome, Italy.

Massimo di Vita | Archivio Massimo di Vita | Mondadori wallet | Getty Images

There are also concerns about the impact of supply chain problems from Asia on manufacturing activity in Europe, as well as the fact that higher wages could fuel inflationary pressures.

Speaking to CNBC’s Steve Sedgwick at the European House’s Ambrosetti Forum on Saturday, Monti said that not only in the EU, economies could start to experience elements of “stagflation”, as seen in many country in the 1970s. was gone.

Monti therefore said that “an intelligent and coordinated way will be very important to make this transition to a more normal state of monetary and financial support”.

Preliminary data released on Tuesday showed inflation in the euro area peaked in 10 years in August, with consumer prices rising 3% from the previous year.

The European Central Bank is due to hold its next policy meeting on September 9 and is expected to discuss the way forward for its asset purchase program. However, analysts told CNBC earlier in the week that they expected the ECB to announce a cut in its COVID stimulus measures by December.

Sylvia Amaro of CNBC contributed to this report.

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