ECB’s Panetta says even if Iran war ends damage has been done

[ROME] Damage caused by the US’ war against Iran will continue to have a negative impact on the global economy even if hostilities end soon, according to European Central Bank Governing Council member Fabio Panetta.

“The ongoing conflict is already causing unprecedented disruptions in global energy supply chains and its spread to the Gulf countries has forced some of them to suspend hydrocarbon production, with immediate and potentially lasting effects on international markets,” said Panetta, who also heads the Bank of Italy.

“Even assuming a rapid stop to hostilities, the return to normal production would be slow,” he said Thursday (Apr 2) in Rome.

The conflict launched on Feb 28 by the US and Israel has sowed anxiety over how badly spiralling energy costs will drive inflation and weigh on economic expansion. Panetta joined other ECB officials in warning that the base scenario for fallout in Europe may no longer hold.

“The ECB’s macroeconomic projections, released two weeks ago, already included two adverse scenarios, which are now more likely than they were at the time of publication,” he said. “In the second, more severe scenario, damage to infrastructure would delay the recovery until 2027.”

Irish central banker Gabriel Makhlouf said this week that a lengthy war would steer the euro-area economy toward a worse outcome than the base case. His Slovenian counterpart Primoz Dolenc said the adverse scenario was likely to become the new baseline. BLOOMBERG