By David Barwick – FRANKFURT (Econostream) – European Central Bank Vice President Luis de Guindos said Monday that the war in the Middle East would have a strong impact on euro-area growth and inflation, while stressing that the ECB did not expect the shock to trigger a recession.
In an interview with El Mundo published by the ECB, de Guindos said the Governing Council had concluded at Thursday’s monetary policy meeting that the conflict would weigh significantly on the economy and that the extent of the damage would depend on how long it lasted and how broadly it spread.
“At our meeting on Thursday we concluded that it will have a strong impact on both growth and inflation,” he said. “Needless to say, the longer and more widespread the conflict, the greater its impact will be.”
De Guindos noted that the ECB’s baseline scenario assumed energy prices would peak in the second quarter of 2026 before oil and gas prices fell sharply, while the adverse scenario assumed the crisis would last until the third quarter and the severe scenario envisaged normalization only beginning early next year.
Even under the harshest assumptions, he said, the ECB was still not forecasting a recession in the euro area.
“No, we don’t expect it to,” he said when asked whether the war could trigger a recession. “Even in the most severe scenarios, we are still seeing positive growth.”
On interest rates, de Guindos did not endorse expectations of a move before summer and said the ECB would remain data-dependent.
“We are following a data-dependent approach, and we will analyze that data at our next meetings,” he said.
He said policymakers would look at headline and underlying inflation, inflation expectations, and developments in energy, fertilizer and food prices, adding that the April Governing Council meeting would bring more information about the conflict, which he described as the main source of uncertainty.
Asked whether rate hikes were now more likely than further cuts, de Guindos again avoided committing to a direction, saying only that the ECB was ready to respond if needed and remained alert to possible second-round effects.
On fiscal policy, he said governments should treat the shock as temporary and avoid broad-based support measures.
Should governments respond to the crisis, “we recommend making these measures temporary and tailoring them to help the most vulnerable groups, who will be hardest hit by higher energy prices,” he said.
De Guindos also cautioned that euro area fiscal room was limited, noting that the public deficit averaged 3% of GDP and public debt stood near 90% of GDP, while countries had also committed to raising defense spending.
He said recent market moves suggested investors did not expect the conflict to last too long or become too costly, though he warned that uncertainty remained very high.
On the digital euro, de Guindos argued that Europe’s dependence on US-controlled payment systems strengthened the case for moving faster, saying the project would simply provide an additional payment option across the euro area rather than replace cash or crowd out private initiatives.
He also said he hoped Spain would regain representation on the ECB’s Executive Board in the coming years and described former Banco de España Governor Pablo Hernández de Cos as a strong possible candidate, while saying Lagarde had indicated that she intended to complete her term.