The European Central Bank delivers a ‘shock and awe’ sized interest rate hike

The central bank upgraded its GDP growth forecasts for 2022 but has aggressively downgraded its forecast for next year.

08 September 2022

The European Central Bank (ECB) meeting today saw it deliver the ‘shock and awe’ sized interest rate hike which seems in vogue amongst central bankers at present. Given the delta of this move, this is of particular note as it confirms that the hawks are definitely in control. From accepting the transient inflation narrative of last year, the policy reversal is almost as extreme as its outlook for growth (and inflation) this year, where it sees an improving outlook for GDP compared to its last assessment, with GDP growth for 2022 upgraded to 3.1% from the 2.8% prior estimate and with inflation at 8.1% this year compared to 6.8% previously forecast. And this high inflation with higher rates sees the central bank downgrading quite aggressively its forecasts for growth next year, now expected at 0.9% versus the 2.1% previous forecast but it does not see a recession on the horizon, which might be at odds with markets at the moment.