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Concerns that the eurozone could slip into recession if the conflict in the Middle East continued are \u201creal and justified\u201d and talks to end the Iran war will be key for the ECB monetary policy, Bank of Greece governor Yannis Stournaras said.<\/p>\n
Stournaras, who is also a member of the European Central Bank\u2019s Governing Council, said in an interview published on Sunday in Cyprus\u2019 Phileleftheros newspaper that while the eurozone economy was resilient, its momentum has weakened.<\/p>\n
\u201cConcerns about the possibility of a recession in the eurozone are real and justified, given the new negative supply-side disruption caused by the conflict in the Middle East,\u201d Stournaras said. \u201cRising energy prices and increasing uncertainty directly affect growth and inflation, given the eurozone\u2019s high energy dependence,\u201d he said.<\/p>\n
\u201cIn contrast to 2022, the rise in inflation is occurring in an environment of already weaker growth, tighter financial conditions and reduced fiscal space, which limits policy space and makes economies more vulnerable,\u201d Stournaras said.<\/p>\n
So far there has been no significant spillover effect from higher energy prices on inflation, but damage to energy infrastructure could bring inflationary pressures over the medium term and uncertainty could hurt investment and growth.<\/p>\n
\u201cOur response will depend on the intensity, duration and transmission channels of the shock. If it turns out to be transitory and without significant second-round effects, no adjustment of monetary policy will be required,\u201d he said.<\/p>\n
A large, but temporary overshoot of the ECB\u2019s target might require a \u201cmeasured adjustment\u201d to limit the second-round inflationary effects.<\/p>\n
\u201cIf it leads to a large and persistent deviation of inflation from the target, then the response should be robust,\u201d he was quoted as saying. [Reuters]<\/p>\n<\/p><\/div>\n