The European Central Bank (ECB) is like being 'swallowed by mother's death, spoken by father's death' with inflation readings in the European zone soaring high, close to double digits, when there is a risk of recession from aggressive rate increases.
The matter refers to the ECB's dilemma whether to raise rates higher which leads to recession, or to provide economic stimulus and risk a spike in inflation.
As a context the ECB was previously in stagflation, a situation where inflation is too high flanked by economic contraction, after almost a decade of maintaining zero interest rates.
Nevertheless, the ECB has recently been seen opting for a tightening policy and is expected to implement another interest rate hike of 75 basis points next week as European inflation jumped to 9.1% in August.
According to Commerzbank economist Christoph Weil, with inflation expected to continue to rise in September, the ECB is predicted to choose another rate hike of 75 basis points.
It was also supported by Nordea in a note saying the ECB would raise rates by 75 basis points next week despite new projections for growth approaching a slowdown scenario.
In the meantime, economists unanimously express the belief that avoiding recession is impossible at this level.
According to Riccardo Marcelli from Oxford Economics, high inflation will add burden to demand and further weaken growth until pushing the European zone into recession in the winter.
