Finance Minister Paschal Donohoe said the eurozone recession is not on the card, despite the recent crash in bond markets and rising energy prices due to Russia’s Ukrainian war.
I still expect to be in a position to see the eurozone economy grow this year and next year. “
After the Eurogroup meeting on Thursday, he said there was a consensus among the ministers that “we are absolutely confident about the robustness and strength of the euro area as circumstances change.”
Paolo Gentiloni, head of economics for the European Commission, noted that the EU’s first-quarter growth was “more positive than expected.”
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However, data swelled with a 10.8% surge in Ireland’s gross domestic product, EU activity increased 0.7% and Eurozone GDP increased 0.6%. This is twice the original estimate. Excluding Ireland, Eurozone GDP was 0.3%.
The EU recently cut its 2022 GDP forecast by almost half due to the war in Ukraine.
“Of course, we don’t have the level of growth we predicted in 2022. It’s much lower, but that doesn’t mean we’re destined for a recession,” Gentiloni told reporters in Luxembourg.
“Of course, the environment is harsh, but I don’t think it’s useful to make catastrophic prophecies.”
His comment comes from Russia’s state-owned supplier Gazprom reducing gas flow to Europe through the NordStream1 pipeline for two consecutive days due to “maintenance issues”.
Wholesale gas prices in the Netherlands have risen by 30%.
Meanwhile, investors dumped EU and US government bonds after an unexpected rate hike in Switzerland and a 0.25% rise in UK’s major borrowing rates.
The move will take place the day after the US central bank raises interest rates by 0.75% to stop inflation. At an emergency meeting on Wednesday, the European Central Bank promised to quickly track new “anti-fragmentation measures” to curb rising debt yields in Italy, Greece and other surrounding eurozones.
ECB Governor Christine Lagarde told the Eurogroup Finance Ministers’ meeting Thursday that new tools would work if borrowing costs in weak countries were too high or too fast.
But the German and Austrian finance ministers urged the government to do more to control spending and borrowing, rather than relying solely on the ECB.
“Please organize your budget. That’s the message,” said Austrian Treasury Minister Magnus Bruner. “The ECB has more possibilities. The ECB is only possible if all budgets in all member countries are in place.”
Germany’s Treasury Minister Christian Lindner said “no one needs to be nervous” about rising bond yields, saying sound finances are the best way to restore market confidence.
“We have the ECB’s responsibility to fight inflation, but we have to take responsibility as Finance Ministers,” he said.
Ireland’s recession is “unlikely” this week, given the strong job market and bumper tax receipts, said Gabriel McLauf, Governor of the Central Bank of Ireland.
