Margarita Delgado: Economic prospects and impact on the financial system

Speech by Ms Margarita Delgado, Deputy Governor of the Bank of Spain, at the KPMG Global Managers Meeting, Paris, 12 October 2022.

The views expressed in this speech are those of the speaker and not the view of the BIS.

Central bank speech  | 
17 October 2022

I am very pleased to join you at this global meeting to share my views on these challenging times and on how the current situation might affect the financial system in the near future. First of all, it must be acknowledged that our capacity to accept, digest and adapt to the shocks we have recently seen has been remarkable. At the same time, such profound and sudden changes mean that any forecast we publish becomes outdated very soon.

You might agree with me that, nowadays, the only thing that is certain is that we live in uncertain times, and we must deal with this.

Let me start by briefly reviewing the economic situation and the outlook for the euro area. It is worth remembering that the current inflationary pressures first emerged in mid-2021, right after the reopening of the economy following the global vaccination efforts, and have continued through to 2022. Three factors have contributed to this. First, commodity prices started to increase, in part driven by the significant recovery in demand. Second, supply bottlenecks began to emerge, mainly in maritime trade, but also in other sectors such as semiconductors, due to the post-pandemic rebalancing of consumer preferences that led to a demand push at a global level, as well as the emergence of supply-side constraints due, for example, to COVID-related containment policies in key hubs, such as Chinese ports. As a result, by the first quarter of 2022, inflation in the EU was already at its highest level since the creation of the monetary union. Lastly, in this unstable scenario in which supply and demand had yet to adjust, the outbreak of war in Ukraine fuelled further instability in the inflation outlook and hindered the economic recovery that was starting to take hold in early 2022.