Euro-area output may lower by round 0.8% within the medium time period as a result of oil value will increase, the European Central Financial institution stated.
(Bloomberg) — Euro-area output could decrease by around 0.8% in the medium term due to oil price increases, the European Central Bank said.
“This constitutes a somewhat limited shock, which should be seen in the context of the cumulative increase in potential output, estimated by the Commission to hover around 5.2% for the next four years,” the ECB said in pre-release of its economic bulletin published Monday.
The forecast assumes a permanent oil price shock of 40%, said economists Julien Le Roux, Bela Szörfi and Marco Weissler.
Euro-area economies have been growing despite continuing damaging effects from the pandemic and fallout from the Russian invasion of Ukraine, which has pushed up energy prices across the continent.
Despite mounting uncertainty, for now the current increase in oil costs is smaller than the 1973 and 1979 shocks, and of a lesser magnitude than the increase observed between 2003-2008, the ECB economists said.
The reduced impact of such energy shocks could be linked to more flexible labor markets, improved monetary policy and the fact that economies have lower usage intensity than in the past.