European Central Bank Governing Council member Mario Centeno struck an optimistic note on the bloc’s economy for 2023, adding to expectations of more rate rises.
Speaking in Davos on Tuesday at a discussion entitled “Staying ahead of a recession”, the governor of the Central Bank of Portugal said: “The economy has been surprising us quarter after quarter…The fourth quarter in Europe will be most likely still positive. Maybe we’ll be surprised also in the first half of the year.”
Centeno’s comments chime with data out of Germany last week which showed the continent’s biggest economy positively surprising analysts by recording GDP growth of 1.9% in 2022. Furthermore, the ZEW survey of German business confidence published on Tuesday showed economic sentiment jumping from minus 23.3 in December to 16.9 in January.
Centeno’s upbeat assessment of the region’s economic prospects may be taken by investors as a sign that the central bank is more likely to continue raising interest rates to combat inflation. The bloc’s consumer price index rose 9.2% in the year to November, down from 10.1% the month before. December’s figure is due on Wednesday.
“The normalization of monetary policy was really needed in Europe,” Centeno said. The ECB has raised rates from minus 0.5% in June to 2% in December. German 10-year bund yields
were up 2.2 basis points to 2.196%.
One of the reasons the European economy was more robust than expected was because the region’s labor market had handled the fallout from the COVID-19 lockdowns better than others, notably the U.S., said Centeno.
In the U.S. companies had shed workers swiftly and then have struggled to hire them back, contributing to wage inflation. In Europe, there were initially fewer layoffs and so the dislocation was not as great, Centeno argued.
However, Centeno warned that the war in Ukraine meant sentiment across the continent was fragile. “What worries me most is the confidence levels, We haven’t recovered from the shock of February last year,” he said.
Other issues addressed by the panel, which included Douglas Peterson, president and CEO at S&P Global
; Axel Lehmann, chairman of the board of directors at Credit Suisse
; and Laura M. Cha, chairman of Hong Kong Exchanges and Clearing
were globalization and geopolitics.
The panelists countered the idea that the world was witnessing a period of de-globalization, with Cha contending that instead globalization is being “reshaped”.
The panelists said they thought geopolitical tensions were their main concern for 2023, with worries about Russia/Ukraine and even China/Taiwan to the fore.