The euro area is in a “very resilient place” and is likely to avert recession with a “very low level of growth” this year, according to the head of the Eurogroup, which brings together the bloc’s finance chiefs.
(Bloomberg) — The euro area is in a “very resilient place” and is likely to avert recession with a “very low level of growth” this year, according to the head of the Eurogroup, which brings together the bloc’s finance chiefs.
Inflation among the 20 countries that share the currency is expected to slow to around 6% to 7% during this year from 8-9% in 2022, Paschal Donohoe told Bloomberg Television in an interview in Brussels on Monday.
“The economic indicators at the moment again back up the resilience of the currency and of the economies that make it up,” he said ahead of a meeting of euro-area finance ministers. “We finished off 2022 with economic indicators with regard to growth and employment that were very resilient, even positive, and far better than would have been expected when the war broke out.”
Donohoe said that “it is in all of our interests” to act to reduce the high level of inflation.
“In the absence of those actions, if inflation persists at the levels that is at the moment, we will be poorer for even longer,” he told Bloomberg News in a separate interview.
Donohoe said it was “too speculative” to comment on whether further monetary tightening by the European Central Bank would push the euro-area economy into a deep recession.
“I’m confident that we can maintain our resilience, maintain high levels of employment in the euro area for this year, even if other actions need to be taken,” he added.
Donohoe said that coordinating budget policies will be a key focus in discussions later on Monday, adding that fiscal action needs to support the existing high levels of employment without adding to inflation.
Asked about the impact of US climate laws introduced last year, Donohoe said the recent US climate law known as the Inflation Reduction Act could have consequences and that the European Union must ensure the Covid pandemic recovery fund is “executed well and promptly” during 2023.
The European Commission, the bloc’s executive arm, is reviewing the legislation and will share its conclusions with finance ministers soon, he added.
–With assistance from Max Ramsay and Morwenna Coniam.
(Updates with more Donohoe quotes starting in fourth paragraph)
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