BERLIN (Realist English). Europe and the U.S. face a high likelihood of recession as central banks are forced to aggressively tighten monetary policy to combat inflation, Deutsche Bank CEO Christian Sewing said in an interview with CNBC.
“We need to fight inflation because at the end of the day, inflation is the biggest poison for the economy”, he stressed.
Europe’s proximity to Ukraine and its reliance on Russian energy imports render the continent uniquely vulnerable to the conflict and a potential stoppage of Russian gas flows.
“One thing is clear: if there is a sudden stop of Russian gas, the likelihood of a recession coming sooner is obviously far higher. There is no doubt,” said the head of Deutsche Bank.
Last week, the Federal Reserve, the European Central Bank, the Swiss National Bank and the Bank of England took different steps to curb inflation.
Consumer price inflation in the euro zone hit a fresh record high of 8.1% in May and the ECB has confirmed its intention to begin hiking interest rates at its July meeting.
Central bank leaders and economists around the world have acknowledged that the aggressive tightening that may be necessary to rein in inflation could risk tipping economies into recession, with growth already slowing due to a confluence of global factors.
Along with inflation stemming from the armed conflict in the territory of the former Ukraine and associated sanctions on Russia, supply chains have also been stymied by resurgent post-pandemic demand and a return of COVID-19 control measures, most notably in China.
The Deutsche Bank CEO believes that the probability of a recession in Germany or Europe in 2023 or later is higher than ever.
“That is such a challenging situation that we have three, four drivers which can severely impact the economy, and all of that coming together in one and the same time means that there is enough pressure and a lot of pressure on the economy, and hence the likelihood of a recession coming into Europe, but also in the U.S., is quite high,” Sewing said.
Given this confluence of challenges, Sewing said he is increasingly reluctant to rely on traditional models as the economy faces a “perfect storm” of “three or four real levers which can cause, at the end of the day, a recession.”
“I would say that the inflation is something that really worries me most and therefore I do think that the signal which we got from the central banks, be it the Fed but now also the ECB, is the right signal,” he said.
