Euro area financial stability outlook fragile: ECB

While economic conditions in the area have improved slightly, uncertain growth prospects paired with persistent inflation and tightening financing conditions continue to weigh on the balance sheets of firms, households and governments, the review said.

Furthermore, an unexpected deterioration in economic conditions or financial tightening could lead to disorderly price adjustments in either or both financial and real estate markets, it noted

Looking more closely at vulnerabilities, euro area firms face tighter financing conditions and uncertain business prospects. This could be particularly challenging for those firms that came out of the pandemic with greater debt and weaker earnings.

At the same time, high inflation is hitting households—particularly those on lower incomes—by reducing their purchasing power and compromising their ability to repay loans, the review noted.

Euro area banks have also proved resilient to stresses in US and Swiss banks on account of their limited exposures. This resilience was supported by strong capital and liquidity positions resulting from regulators’ and supervisors’ efforts over recent years, it added.

Fibre2Fashion News Desk (DS)