Europe’s proximity to the war in Ukraine and its dependency on Russian energy imports make the continent vulnerable to the conflict and to a potential stoppage of Russian gas flows.
“One thing is clear: if there is a sudden stop of Russian gas, the likelihood of a recession coming sooner is obviously far higher. There is no doubt,” Sewing told CNBC’s Annette Weisbach in an exclusive interview.
“But I would say that overall, we have such a challenging situation that the probability of a recession also in Germany, or in Europe in 2023 or the year after, is higher than we have seen it in any of the previous years, and that is not only the impact of this awful war, but look at the inflation, look at what that means for monetary policy.”
In addition to the inflation sparked by the war in Ukraine and sanctions on Russia, supply chains have also been disturbed by post-pandemic demand and a return of Covid-19 control measures, specifically in China.
“That is such a challenging situation that we have three, four drivers which can severely impact the economy, and all of that coming together in one and the same time means that there is enough pressure and a lot of pressure on the economy, and hence the likelihood of a recession coming into Europe, but also in the U.S., is quite high,” Sewing said.
Inflation ‘really worries me most’
Sewing said the economy faces a “perfect storm” of “three or four real levers which can cause, at the end of the day, a recession.”
Sewing said inflation was the biggest concern, however.
“I would say that the inflation is something that really worries me most and therefore I do think that the signal which we got from the central banks, be it the Fed but now also the ECB, is the right signal,” he said.
“We need to fight inflation because, at the end of the day, inflation is the biggest poison for the economy.