According to ING, the eurozone is the most vulnerable of the region’s major conflict-affected economies, making the region, which has benefited from investment diversification by withdrawing funds from U.S. assets, vulnerable to adverse effects.
In addition, the euro is still about 4% higher than it was in February 2022. Thus, barring a sharp jump in the dollar, the euro’s appreciation is helping to contain energy import costs. At the same time, other major importing countries such as Japan and South Korea are seeing weaker currencies, Investing.com writes.
Inflation, not again!
The ECB expects inflation to fall short of its 2% target this year and next, so it has some headroom. However, it calculates that a permanent 14% jump in energy prices would reduce growth by 0.1% this year and push inflation up to 0.5%.
Oil prices are more than 20% higher than forecast in December. A sustained rise in oil prices to around $100 would push inflation up from the current 1.7% to just under 3%, Commerzbank chief economist Jörg Kramer said, adding that it would hurt euro zone economic growth and create a “dilemma” for the ECB.
EURO DESTROYED
A prolonged war could lead to a significant rise in eurozone inflation and lower economic growth, ECB chief economist Philip Lane told the Financial Times in an interview published on Tuesday.
Such concerns have hit the euro, a currency that has fallen heavily among developed-nation currencies. The euro fell 0.3 percent to $1.1656 on Tuesday, hitting its lowest level since January, and has fallen 1.4 percent since the close of trading on Friday.
The Swiss franc also hit its lowest level in more than a decade, prompting threats from authorities about possible intervention to weaken the franc.
