Citigroup chief executive says Europe is sliding into recession

Bank of France governor Francois Villeroy de Galhau claims Europe proving resilient

The chief executive of Citigroup, one of the world’s largest banks, said on Monday she believes Europe is sliding into recession as it grapples with the consequences of war in Ukraine and a resulting spike in energy prices.

“Europe is right in the middle of the storms from supply chains, from the energy crisis and, obviously, just the proximity to some of the atrocities that are occurring in Ukraine,” Citigroup chief executive Jane Frazer told a Davos panel on Monday on the global economic outlook.

Asked by the host of the panel, CNBC broadcaster Geoff Cutmore, if these factors left her convinced that Europe was heading into recession, Ms Frazer said: “Yes, but I hope I’m wrong.”

However, Bank of France governor Francois Villeroy de Galhau said that Europe was showing itself to be more resilient than the Citigroup chief executive’s view. He highlighted German business confidence figures published on Monday, which were stronger than expected, as well as recent forecasts from the European Commission that the euro zone economy will expand by 2.7 per cent this year.

“We all knew from day one that this war was bad economic news,” Mr Villeroy de Galhau said. “The main problem, at least in the short term, is inflation.”

The Bank of France governor said the European Central Bank (ECB) needs to act now to “normalise monetary policy”. He added that comments from ECB president Christine Lagarde earlier on Monday that the bank’s governing council would likely lift its key deposit rate out of negative territory by the end of September meant that “the deal is probably done”.


The ECB’s deposit rate is currently set at minus 0.5 per cent, meaning that commercial banks are being charged to store their surplus cash at the central bank. The ECB has had a negative-rate policy on deposits since 2014 as part of an effort to fight the spectre of too-low inflation for much of the time since then.

Headline inflation in the euro zone hit an all-time high of 7.4 per cent in April, with even measures that strip out volatile food and energy prices far exceeding the ECB’s 2 per cent target.

While central bankers internationally had been left surprised by how sticky high inflation has proven to be in recent times, exacerbated by a further surge in energy prices since the Ukraine war, Mr Villeroy de Galhau insisted that the ECB would bring inflation back towards 2 per cent in 2024. “We will do that through normalisation of monetary policy, not tightening,” he said.

Meanwhile, the US, which has so far shown “more resiliency” in the economy, the labour market and among consumers than in Europe, may yet skirt a recession, Ms Fraser said. However, much depends on how the US Federal Reserve conducts its rate hiking strategy as inflation soars ever higher.

Joe Brennan

Joe Brennan

Joe Brennan is Markets Correspondent of The Irish Times