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(Bloomberg) — It’s still unclear how big a blow the Iran war will inflict on the euro-area economy, according to European Central Bank Chief Economist Philip Lane.
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“Until we know more how long this war is going to last, it is really hard to know whether this is going to prove to be a temporary phase or a much bigger shock to the European economy,” Lane said Wednesday, while highlighting that energy prices are already feeding through to inflation.
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Speaking on a panel in Frankfurt, he highlighted that the conflict is a “significant shock, but I have not seen anything in the last month to overturn information we had at our March meeting between the baseline and our adverse scenarios.”
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Disruptions from the Iran war are hitting a European economy already reeling under US trade tariffs, Chinese competition and difficulties in adapting to a greener, more digital future. The ECB expects growth of just 0.9% this year in the best case, and keeps urging Brussels to help strengthen its foundations by pushing reforms.
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Lane’s comments are among the last from ECB leaders before they enter a customary, week-long quiet period ahead of policy decisions. While an interest-rate increase next Thursday has become unlikely after a ceasefire in the Middle East raised prospects of a peace deal between the US and Iran, President Donald Trump’s back-and-forth and a continued blockade of the Strait of Hormuz is keeping officials on edge.
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The length of the disruption and potential spillovers into inflation are complicating the ECB’s job and argue in favor of gathering more information before drawing firm conclusions, President Christine Lagarde said Monday. Traders are no longer pricing a hike for next week, but see an 85% chance for a 25-basis-point move in June.
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Turning to other European challenges, Lane mentioned investment into digital technologies, including artificial intelligence.
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“One of the big issues for the coming weeks and months and years is the speed of adoption of AI by European players,” he said.
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