The European Central Bank would be making “a big mistake” by hiking interest rates in a bid to combat inflation, according to one senior economist, who warns that such a move risks tipping the continent into recession.
Holger Schmieding, chief economist at Berenberg, said Europe’s key “big three” economies — Germany, France and Italy — have been weakened by the recent spike in energy costs, leading to a stagflationary environment on the continent.
Butm with new PMI data indicating weakening employment and demand drivers, Schmieding said that demand destruction should “take care” of the inflation part of the stagflation picture, as consumers spend less on other items to cover energy costs — negating the need for aggressive tightening.
“It’s important to distinguish between what the central banks unfortunately are likely to do and what would be the right thing,” Schmieding told CNBC’s “Europe Early Edition” on Friday.
“My impression is that the European Central bank is going to make a big mistake.”
