Balance of risk now more favourable for euro economy: ECB's Knot

AMSTERDAM: The risk of a deeper economic euro zone recession than predicted in the European Central Bank's (ECB) baseline scenario has diminished, ECB governing council member Klaas Knot said on Friday.

"Recent data solidifies the confidence in our baseline scenario with a more favourable balance of risks," the Dutch central bank president said in a speech at a webinar hosted by Bloomberg.

The ECB last month said it expected the economy of the euro zone to shrink by 8.7% in 2020, followed by growth of 5.2% and 3.3% respectively in the next two years.

Knot said confidence in this outlook had been bolstered by recent data, which had been better than expected.

"Confidence indicators showed a strong rebound in June to close an otherwise disastrous second quarter," he said. "Forward-looking confidence indicators already signalled a bottoming-out in May."

To stimulate the recovery and to offset the surge in private savings brought on by the looming deep recession, governments should increase their spending, Knot said.

The Dutchman said he welcomed recent proposals for the European Recovery Fund, as they include important investments in digitalisation and Europe's Green Deal.

"In these times of exceptional uncertainty, it would provide an important signal that we do not stop at only stabilising our economies, but also take the opportunity to address common longer-term challenges."

EU governments have not yet managed to agree on the fund, as the Dutch lead a group of countries resisting the idea of it largely being made up of grants instead of loans.