Eurozone set to dodge recession, says ECB VP

THE euro-area economy looks set to avoid the six-month downturn that had been expected as recently as late last year, said European Central Bank (ECB) vice-president Luis de Guindos. 

“Growth in the first quarter of the year, according to the leading indicators, is going to be possible,” Guindos told a panel discussion on Wednesday (Apr 26) in Delphi, Greece.

“This is good news, because only in December last year, our baseline was that we could have a technical recession. This is not going to take place.”

While activity in the bloc dipped by 0.1 per cent in the final three months of 2022, recent data signals improving conditions after the energy crisis sparked by Russia’s war in Ukraine eased.

Guindos also cited a strong labour market with all-time low unemployment.

ECB officials are parsing such data to determine how high to take interest rates, with a first estimate of first-quarter economic growth due Friday. The outcome of their next meeting, on May 4, remains open as they await figures on prices and bank lending. 

Guindos reiterated that core inflation, which strips out volatile components and is closely watched by policymakers, is “much more sticky than headline inflation”.

Speaking at the same event, Cypriot central bank chief Constantinos Herodotou highlighted the importance of financing conditions in deciding the next policy steps. 

Recent financial market tensions “may have an additional impact on financing conditions, in addition to our monetary policy, so we need to gauge that and see how it could potentially complement or at least how it contributes to the monetary policy stance”, he said. 

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But Herodotou also cautioned that other factors, including rising wages and trade frictions as a result of geopolitics, may contribute to price pressures, so the challenges faced by the ECB “may act in opposite ways”. BLOOMBERG