According to Christian Sewing, CEO of Deutsche Bank, there is a high probability of a recession in Europe and the US as central banks are forced to aggressively tighten monetary policy to fight inflation.
The US Federal Reserve, the European Central Bank, the Swiss National Bank and the Bank of England all took steps last week to contain inflation, albeit to varying degrees.
Eurozone CPI inflation hit a new record high of 8.1% in May and the ECB has reiterated its intention to start raising interest rates at its July meeting.
Central bank leaders and economists around the world have acknowledged that the aggressive tightening needed to contain inflation could push economies into recession as growth is already slowing due to a confluence of global factors.
The flag of Deutsche Bank AG flies in front of the corporate headquarters on Wall Street in New York City.
Markus Kauzlerich | Bloomberg | Getty Images
Europe’s proximity to the war in Ukraine and its dependence on Russian energy imports make the continent particularly vulnerable to conflict and a possible blockage of Russian gas flows.
“One thing is clear: if the Russian gas flow suddenly stops, the likelihood of an imminent recession is significantly higher. There’s no doubt about it,” Stitch said in an exclusive interview with CNBC’s Annette Weisbach.
“But I would say that overall we have such a challenging situation that the probability of a recession in Germany or in Europe in 2023 or the year after is greater than in any previous year, and not only for this terrible effects of the war, rather look at inflation, see what that means for monetary policy.”
As inflation stems from the war in Ukraine and related sanctions against Russia, supply chains have also been shaken by resurgent demand and the easing of COVID-19 control measures, particularly in China.
“It’s such a challenging situation that we have three, four drivers that could seriously affect the economy and all of this at the same time means there’s enough pressure and a lot of pressure on the economy, and that’s in Europe, but also in the In the US, the potential for a recession is very high,” Stitch said.
Sewing: Inflation is really my biggest concern
Faced with this confluence of challenges, Stitch said he was reluctant to rely on traditional models as the economy faces a “perfect storm” of “three or four real levers” that could result in a recession at the end of the day. could be the reason.
However, Sewing said inflation was the biggest concern.
“I would say inflation is the one thing that really worries me the most and that’s why I think the signal we’ve gotten from central banks, be it from the Fed but now also from the ECB, is the right one signal is,” he said.
“We have to fight inflation because, in the end, inflation is the biggest poison for the economy.”