Euro zone services booming but sentiment recovery may have stalled -ECB’s Lane

Euro zone services booming but sentiment recovery may have stalled -ECB's Lane
© Reuters. FILE PHOTO: Signage is seen outside the European Central Bank (ECB) building, in Frankfurt, Germany, July 21, 2022. REUTERS/Wolfgang Rattay

DUBLIN (Reuters) -Growth in services across the euro zone is still accelerating but the steady improvement in business and consumer sentiment may have stalled, European Central Bank chief economist Philip Lane said on Wednesday, calling recent developments mixed.

The ECB has raised interest rates at its past six meetings and said that unless the economy starts developing differently than it predicted last month, more increases will be needed to curb inflation.

“The expansion of services business activity is accelerating, supported by a continuation of strong reopening effects and rising incomes, whereas manufacturing output stagnated in the first quarter of the year,” Lane said in Dublin.

“Incoming survey indicators suggest that the steady improvement in business and consumer sentiment, which remains at low levels, may have stalled,” he added.

Markets are now betting on a 25-basis-point interest rate hike at the ECB’s policy meeting on May 4 but investors see a one-in-three chance of a 50-basis-point increase before rates rise further in subsequent meetings.

The peak in rates is seen just below 4% and Lane said that once the benchmark rate hits a plateau, it will stay there for an extended period before cuts are possible.

He also noted that once rates come down, they could stabilise around 2%, not returning to sub-zero levels.

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