EU Could Escape Technical Recession, Dombrovskis Says

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(Bloomberg) — Positive signs show that the European Union may escape a technical recession, European Commission Vice President Valdis Dombrovskis told Bloomberg TV.

“Since autumn we have seen some positive signs,” Dombrovskis said in Brussels on Wednesday, including energy prices falling “lower than previously expected because our gas storages were full at the beginning of the winter” and the winter has been relatively mild so far.

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Dombrovskis also pointed to a price cap on Russian oil, and the EU’s crisis response including its recovery plan helping the economies of member states. “So indeed we are expecting shallower economic contraction around the turn of the year than it was expected previously, maybe we can also escape this technical recession,” he said.

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German Chancellor Olaf Scholz told Bloomberg on Tuesday he’s sure Germany will avoid a recession this year, offering reassurance for Europe’s largest economy as it faces down Russia’s energy squeeze. Germany is getting through the winter energy crunch in better shape than feared just a few weeks ago, and Scholz said that diversifying gas supplies has been critical in helping to keep the economy going.

Dombrovskis said inflation “seems to have peaked, it has come down markedly in December” but he noted that “the core inflation remains still elevated, so yes there are positive signs but we need to stay vigilant.”

Dombrovskis met with US Trade Representative Katherine Tai on Tuesday to discuss European concerns over President Joe Biden’s $369 billion dollar (€340 billion) climate bill. The EU has said that some of its provisions may breach the rules of the World Trade Organization because it offers tax breaks and subsidies for the production of electric vehicles and other green technologies only to companies based in the US.

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“There are some openings from the US side but we really need to make sure we produce concrete results,” Dombrovskis said of discussions on the US Inflation Reduction Act. He said further work needed included issues such as clean vehicle subsidies, batteries, and critical minerals.

To boost European competitiveness and avoid the loss of jobs and investment, commission President Ursula von der Leyen outlined a Green Deal Industrial plan in Davos, Switzerland, on Tuesday. The initiative would simplify state aid rules to support the clean transition and would consider tax-breaks to support firms in the bloc.

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