Euro zone economy faces risk from new surge in virus, ECB policymakers say

© Reuters. FILE PHOTO: European Central Bank (ECB) Vice-President Luis de Guindos attends a news conference on the outcome of the meeting of the Governing Council, in Frankfurt, Germany, October 24, 2019. REUTERS/Ralph Orlowski

S’AGARO, Spain (Reuters) -The euro zone economy is still rebounding but it faces a fresh challenge from a rise in coronavirus cases and a new variant, two European Central Bank policymakers said on Friday.

Global authorities and investors reacted with alarm on Friday to a new coronavirus variant detected in South Africa, with the European Union and Britain among those tightening border controls as researchers sought to find out if the mutation was vaccine-resistant.

ECB policymakers Ignazio Visco and Luis de Guindos said the pandemic was once again a source of worry.

“Uncertainty remains high, mainly reflecting a health situation that has once again become a source of considerable concern,” Visco, the Bank of Italy’s governor, said at an event.

Stock markets were falling sharply and investors were pushing back their rate hike bets on Friday on worry the new variant may be able to evade immune responses and could be more transmissible. [MKTS/GLOB]

The ECB has guided for no rate hike next year but it has been widely expected to wind down its 1.85-trillion-euro ($2.1 trillion) Pandemic Emergency Purchase Programme (PEPP) in March.

Visco said the new increase in the number of infections in Europe and other countries, which has been accelerating in recent weeks, pushed back “the post-COVID perspective”.

De Guindos, the ECB’s vice-president, also noted challenges from the new variant, rising cases as well as supply bottlenecks but struck a more optimistic tone.

“We’ve got a differentiating factor, which is vaccination,” de Guindos told an event in Spain. “Therefore I think the effect on the economy is going to be more limited, I’m relatively optimistic.”

He added the economy had shown an ability to adjust to the pandemic and predicted the economy would grow by around 5% this year and strongly next year too.

($1 = 0.8862 euros)

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