Evgeny Goryunov, Head of the Gaidar Institute's Monetary Policy Department commented on the eurozone economic situation for RBC and assessed the risks of stagflation amid slowing growth and accelerating inflation.
According to the expert, the current macroeconomic situation in the countries of the European Monetary Union does not yet give grounds to talk about full-blown stagflation. Despite prevailing risks, the eurozone economy keeps growing and inflation remains significantly below its post-COVID peak.
“I think it is definitely too early to talk about stagflation. Firstly, the European economy is still growing: in Q1, the Eurozone’s GDP grew by 0.6%, seasonally adjusted. Leading global think tanks also maintain a positive forecast for the countries of the European Monetary Union. At the same time, inflation is still at a relatively modest level of 3%. In the post-COVID period, inflation in the Eurozone and the EU reached double-digit levels, so the current price acceleration does not seem critical," noted Evgeny Goryunov.
The expert admits that a technical recession may take place, but even in this case the downturn will not be dramatic. Evgeny Goryunov believes that the European economy is likely to avoid a serious crisis.
“We are more likely to see growth rates slowing to near-zero levels -- say, from 0 to 0.3–0.5% --with inflation rising slightly to 4–6%. This level could remain for some time, but we are unlikely to see a classic inflationary spiral unfold," Evgeny Goryunov says.
Evgeny Goryunov also believes that the European Central Bank will maintain a cautious approach to monetary policy in the near future and will not sharply tighten conditions.
“At the last ECB meeting, the possibility of further rate hikes was discussed, but in my opinion, the regulator will adopt a wait-and-see approach. The European Central Bank will likely be counting on a de-escalation of the situation in the Middle East and a gradual, natural slowdown in inflation without aggressive intervention,” the expert emphasized.
Commenting on the differences in economic dynamics between individual European countries, Evgeny Goryunov noted that heterogeneity in the macroeconomic situation is normal for large economic associations.
“There has always been great diversity in macroeconomic conditions among European countries. This is nothing unusual about it. We can observe a similar situation within Russia: regions demonstrate different dynamics of economic activity. This is a natural situation for complex economic systems," Evgeny Goryunov sums it up.