Earlier this year, EU officials managed to steer the economy away from a full-blown recession. Yet new headwinds loom as governments grapple with the heavy costs tied to reducing reliance on Russian gas. This perspective comes from Bloomberg and reflects a region still recalibrating its energy security and fiscal strategy.
eurozone core inflation—measured without energy and food—reached a record high in February, at 5.6%. The European Central Bank appears poised to push rates up to a new peak of around 4% in a bid to curb price growth. Still, that path carries risks. Without further tightening, a fresh cycle of rising wages could take hold, potentially undermining relief efforts for households and businesses alike.
Simultaneously, the ECB’s ongoing rate increases are pushing loan costs higher than at any point in recent memory. In practical terms, this makes financing for government-backed economic support programs more expensive and can complicate efforts to cushion the energy crisis’s impact on households and industries.
One analyst observed that avoiding a recession was not simply due to well-timed moves by central banks. Instead, it reflected a broad government effort to deploy nearly $1 trillion in spending to shield households and to accelerate a shift away from Russian energy sources. Such fiscal maneuvering helped blunt the near-term impact, but maintaining that trend will be harder this year as borrowing conditions tighten and policy levers tighten further.
On 13 February, a European Commission briefing acknowledged that the EU economy had recovered from the last downturn and noted that inflation’s peak may have passed. Yet the same briefing highlighted persistent price pressures in core inflation and elevated electricity costs across member states. As a result, the Commission signaled expectations for further tightening of monetary policy by the ECB to address these ongoing pressures and to sustain the recovery without reigniting cost pressures for households.
Several economies within the union continue to face a delicate balancing act: sustaining growth while resisting the urge to let inflation run hotter again. Policymakers are watching energy prices, wage dynamics, and fiscal responses, all of which shape the path forward for the euro area. The overarching goal remains clear—prevent a renewed slide into recession while gradually restoring economic resilience in the face of a still-tight energy landscape and a complex global monetary environment.