Finance Minister Paschal Donohoe says a eurozone recession is not on the cards, despite a recent bond market rout and spiking energy prices due to Russia’s war in Ukraine.
We still expect to be in a position to see the economy of the euro area grow this year and next year,” said Mr Donohoe, who is also head of the 19-member Eurogroup of finance ministers.
“We are absolutely confident in the resilience of the euro area.”
European Commission economy chief Paolo Gentiloni pointed to first-quarter EU growth figures that he said were “more positive than expected”.
However, the data was inflated by a 10.8pc spike in Irish gross domestic product, which led to EU activity increasing by 0.7pc and eurozone GDP expanding by 0.6pc – double initial estimates. Excluding Ireland, eurozone GDP would have come in at 0.3pc.
The EU recently slashed its GDP forecast for 2022 by almost half due to the war in Ukraine.
“Of course, we don’t have the level of growth that we predicted for 2022 – it will be much, much lower – but this doesn’t mean that we are destined to recession,” Mr Gentiloni told reporters in Luxembourg on Thursday.
“Of course the environment is challenging, but I don’t think having catastrophic prophecies is helping.”
His comments come as Russian state-owned supplier Gazprom cut gas flows to Europe via the Nord Stream 1 pipeline for a second day in a row due to “maintenance issues”.
Dutch wholesale gas prices – a European benchmark – jumped 30pc on Thursday afternoon.
Meanwhile, investors dumped EU and US government bonds after a surprise Swiss interest rate hike and an expected 0.25pc rise in the UK’s main borrowing rate.
The move comes the day after the US central bank hiked rates by 0.75pc in a bid to stem inflation.
At an emergency meeting on Wednesday, the European Central Bank pledged to fast track a new “anti-fragmentation instrument” to curb rising yields on Italian, Greek and other peripheral eurozone debt.
But German and Austrian finance ministers have urged governments in those countries to do more to control spending and borrowing, and not rely solely on the ECB.
“Bring your budgets in order: that’s the message,” said Austrian finance minister Magnus Brunner. “The ECB has to have more possibilities, and the ECB can only have possibilities if all the budgets in all the member states are in shape.”
German finance minister Christian Lindner said there was “no need for anyone to get nervous” about rising bond yields, and said sound public finances were the best way to restore market confidence.
“There is a responsibility of the ECB to fight inflation, but we have to take our responsibility as finance ministers.
“The responsibility of us, of governments, is reducing the deficits in our budgets, returning to a reliable path of debt reduction. This is how we can safeguard the confidence of the markets and our fiscal stability.”
Irish central bank governor Gabriel Makhlouf said this week that an Irish recession was “unlikely” given the buoyant jobs market and bumper tax receipts.