Francesco Canepa and Balazs Koranyi

PARIS (Reuters), – Philip Lane, the chief economist of the European Central Bank has said to his fellow policymakers that Ukraine’s conflict could reduce the Euro zone’s economic output in the year by 0.3%-0.4%. Four people familiar with the matter spoke out to Reuters.

Lane presented the “middle situation” at a Paris Governing Council meeting on Thursday. This came just hours after Russia invaded Ukraine. On Thursday, the ECB grappled with how this crisis might affect its plans to withdraw monetary stimuli.

Lane presented two scenarios: a serious scenario in which GDP falls by nearly 1%, and one where the events in Ukraine have no effect on the 19-country currency block. Sources said that Lane was now unlikely.

One source described the estimates as “back-of-the-envelope” calculations, another said they were “very preliminary” and a third said they were mostly derived from commodities prices.

According to all sources, Lane will bring better forecasts to the ECB’s March 10 policy meeting. At this meeting it is expected that the ECB will decide on the future of the Asset Purchase Programme (APP) which has been in place for decades. The ECB has stated that it will cease making any new bonds purchases in a pandemic crisis scheme once March is over.

Lane didn’t present any new inflation projections, but he told Thursday’s meeting that there would be a substantial increase in 2022’s projection. He also hinted at the possibility of estimates at the end indicating that they could still fall below the ECB’s 2% target.

The spokesperson of the ECB refused to comment.

Currently the ECB forecasts 2024.

To determine if the ECB is able to wind down its APP and pave the way for its first rate increase in over a decade, it will need to forecast inflation and growth.

Yannis Saintournaras (the Greek central bank governor), a policy skeptic known for preferring lower rates, stated to Reuters that the ECB must continue purchasing bonds up until December 31, 2015, in order to absorb the impact of the Ukraine crisis.

Robert Holzmann, a hawkish Austrian friend, stated that the events in Ukraine might delay the ECB’s withdrawal from its stimulus measures.

It has reached 5.1% in the Euro Zone. Inflation is expected to rise further due to the Ukraine crisis. The Consumer Price Index was at 4.1%, which is higher than expected in France. France is the second-largest economy of the eurozone.

Investors had been expecting that the ECB would end bond purchases and increase rates by 50 basis point by December. However, they have since trimmed those expectations.