Deutsche Bundesbank President Joachim Nagel said he does not believe the European Union will experience a recession in 2023, arguing that the latter half of the year is showing promising signs of recovery.
Speaking at the Spring Meetings of the International Monetary Fund (IMF) and the World Bank Group on Thursday, the central banker highlighted the German economy’s resilience in reducing its dependency on Russian gas over the past year.
“The energy question, more or less, is solved,” said Nagel, acknowledging that substitution solutions to Russian gas have not been ideal but are manageable. Similarly, with work still to be done on the inflation front, he nonetheless thinks policymakers are up to the task.
“It seems headline inflation is coming down—good news—but core inflation is still pretty high.”
On Wednesday, March core inflation in the United States came in above headline inflation for the first time in two years, 5.6 percent and 5 percent, respectively. The gap suggests food and energy prices are declining faster than other components, but central bankers watch core more closely when deciding monetary policy.
In Germany, headline inflation decreased in March while core inflation increased. Still, headline remained higher at 7.4 percent year-over-year, with core coming in at 5.8 percent.
Nagel was optimistic that core inflation would soon decrease, possibly as early as this summer. However, he reaffirmed his commitment to keeping lending rates high until such time.
“We have to bring inflation down. In the end, we will succeed,” he said.
Downplays Recession Concerns
When CNBC anchor Sara Eisen pressed about whether continued rate hikes will usher in an economic recession, Nagel downplayed the concern.“I do not see that there is a recession coming,” he said. “There’s maybe a weak first quarter, but the rest of the year seems to be rather favorable.”
Nagel’s remarks differentiate him from other central bankers and IMF officials. In the latest Federal Reserve minutes, it was revealed that the Federal Open Market Committee (FOMC) board of governors is predicting a “mild recession starting later this year.”
The Bundesbank president closed by saying policymakers and central bankers must remain “vigilant” and avoid complacency.
Some market analysts view this shift in Fed language as significant.
Mike “Mish” Shedlock, author of the MishTalk economics blog, told the Epoch Times that FOMC members do not use such terms lightly. He pointed to their reluctance in using the R-word in previous months despite the background of rising unemployment and a distressed financial system.
“They didn’t use the word ‘recession’ then,” he said. “Well, they’re using the word ‘recession’ now. That kind of ties everything together here.”
On the question of whether or not a recession materializes, Shedlock’s outlook was more nuanced. While he predicts the coming economic pain will be relatively mild, he is concerned it could be persistent.
“We are going to have a relatively mild recession, but no real recovery from it. In other words, we’re going to float in and out of recession for a number of years.”
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