Lagarde Says Euro-Zone Economy Probably Shrank at End of 2020

(Bloomberg) -- European Central Bank President Christine Lagarde said the euro-zone economy probably contracted at the end of last year, meaning that the bloc now looks headed for a double-dip recession.

Economists are increasingly predicting that output will shrink this quarter as well, as governments toughen restrictions on travel, leisure and non-essential shops to combat infections, including new variants of the coronavirus.

Lagarde spoke after policy makers decided to keep their monetary settings unchanged. The ECB is betting its stimulus package, which was boosted only last month, will prove sufficient to carry the euro-zone economy through the crisis.

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The Governing Council said it “decided to reconfirm its very accommodative monetary policy stance” by keeping its emergency bond-buying program on track and interest rates at record lows. It will continue providing “ample” liquidity through long-term bank loans.

Policy makers didn’t discuss exchange rates or the pace of asset purchases in detail, according to officials familiar with the matter, asking not to be identified discussing confidential deliberations.

Officials also included a line in the policy decision that their emergency bond-buying program “need not be used in full” if financing conditions can be kept at current levels without doing so. That was a concession to more cautious members at the previous meeting. Most economists surveyed by Bloomberg say the central bank will ultimately spend the full amount, but it won’t need to top up the program again.

Germany, the region’s largest economy, decided this week to tighten its lockdown and extend it until the middle of February. Concerns have been heightened by a sluggish start to vaccination campaigns.

Still, Lagarde has argued that some uncertainties relating to Brexit and the U.S. elections have cleared, and that the ECB already assumed measures to limit the spread of the virus would be in place through the first quarter.