European Central Bank President Christine Lagarde said Russia’s war in Ukraine was causing a “supply shock” to the euro zone economy that would push up prices, cut growth and undermine consumer and business confidence.

Lagarde offers her most pessimistic assessment yet of how invasion will hit EU economy Say Europe “entered a difficult phase” when she outlined how soaring prices of energy, food and manufactured goods would squeeze consumers’ purchasing power. She added that the conflict “started to drain confidence”.

“Obviously, the longer the war lasts, the higher the economic costs and the greater the likelihood that we end up in a more adverse scenario,” she said, noting that higher energy prices have already reduced euro zone revenue by 1.2 percent in the fourth quarter. 2021 quarter. “This figure represents a loss of about 150 billion euros in a year,” she added in a speech in Cyprus.

Her comments were first made by the German government on Wednesday Formal steps in gas rationing It could halt deliveries from Russia due to a payment dispute, which could plunge Europe’s industrial hub into crisis.

Group of economists advising German government warns of ‘significant’ risks to German government economic recession If Russia’s energy imports are cut off, that could send inflation in Europe’s largest economy as high as 9 percent.

Council of Economic Advisers also slash Its growth forecast for Germany in 2022 was raised to 1.8% from 4.6%, and its inflation forecast to 6.1% from 2.6%.

EU investigation post European consumers and businesses have grown more pessimistic since the Russian invasion last month, fearing it would reduce spending, increase unemployment and accelerate price increases, it showed on Wednesday.

Meanwhile, inflation in Spain surged to 9.8% in March, the highest level since 1985, up from 7.6% the previous month and well above expectations, the country’s statistics office said. Say Wednesday.

Early regional data showed that inflation in Germany would rise above 7% in March, which would be the highest level since the early 1980s. Economists also expect price growth in the euro zone to hit a new record of 6.6 percent in March, data due on Friday.

Investors are betting that the European Central Bank will raise interest rates several times and take it to zero by the end of the year. They increased those bets on Wednesday, pushing Germany’s 10-year bond yield to 0.68%.

ECB this month respond Addressing a spike in inflation by outlining plans to halt net bond purchases by September, laying the groundwork for a rate hike this year if inflation remains high. “The best way for monetary policy to respond to this uncertainty is to emphasize the principles of optionality, gradualness and flexibility,” Lagarde said on Wednesday.

But the ECB president also hinted that EU governments could do more to support the economy, saying: “Europe needs a plan to ensure that the necessary investments come online as quickly and smoothly as possible, while public and private finance reinforce each other.”

The European Commission said its economic sentiment index fell 5.4 points this month to minus 108.5, the lowest level in 12 months, “mainly due to a sharp drop in consumer confidence”.

Confidence among industrial and retail trading firms fell, but confidence in the services sector remained stable, the committee said. Inflationary pressures intensified as companies’ price expectations rose to record highs.

The labor market outlook also deteriorated, as consumer unemployment expectations rose sharply and employment expectations fell in most industries except services.