The tangible economic impact of the Russian invasion of Ukraine on the euro area should not lead to a generalised recession in 2022, said the Eurogroup President, Paschal Donohoe, in Luxembourg on Monday 4 April.
“We entered this latest economic crisis with a strong recovery taking place within the euro area. This means that for many economies we are still looking at positive growth figures for 2022”, Mr Donohoe said after the meeting of euro area finance ministers.
Accumulated thanks to the economic upturn linked to the gradual lifting of sanitary measures in 2021, a robust ‘carry over’ should allow the euro area economy to remain in positive territory this year, even if some do not rule out negative growth in the coming quarters.
“The combination of higher inflation and lower growth” is not what we expected at the beginning of 2022, admitted the European Commission Vice-President, Valdis Dombrovskis, on Tuesday 5 April after the Ecofin Council.
According to him, the winter economic forecasts of 4% GDP growth in 2022 are now “out of reach”. And he predicts that the impact of the war in Ukraine will lead to higher public deficits for Member States, which are spending to protect citizens and businesses from soaring energy prices, as well as lower tax revenues.
The European Commissioner for the Economy, Paolo Gentiloni, also considered a recession in 2022 to be highly unlikely, and on Monday noted the great “uncertainty” surrounding the current macroeconomic situation, citing several factors such as the nature of new European sanctions against Russia (see other news), the duration of the war in Ukraine and its possible international repercussions, as well as the evolution of the indicators of confidence of economic operators.
Mr Donohoe therefore reiterated the importance for Member States’ budgetary policies to remain “agile” to adapt to this changing context. He also noted the impact on living standards of soaring inflation, estimated at 7.5% in the euro area in March, fuelled by soaring energy prices. Neither the European Commission nor the ECB has detected an “inflationary spiral” that would be fuelled by a generalised rise in wages, he noted.
On Tuesday, the French Finance Minister, Bruno Le Maire, said that after the energy crisis caused by the Russian invasion, inflation will return to “a more reasonable level, but higher” as Europe gradually relocates some strategic production and invests massively in the climate transition.
The Commission will vote on Monday 16 May on whether to extend the freeze on the Stability and Growth Pact beyond January 2023 in response to the continuing uncertainty over the invasion of Ukraine. On Monday, Spain and the Netherlands did not oppose this possibility (see EUROPE 12925/2). (Original version in French by Mathieu Bion)