Euro zone: Two types of recessions with very different implications for monetary policy

It is often claimed that the euro zone is going to slide into recession, or at least have very weak growth, and that this will reduce job creation, curb wages and lead spontaneously to lower inflation. But it is vital to distinguish between two types of recession: A recession due to a weakening of domestic demand (slowdown in credit, fall in corporate or housing investment). This type of recession would indeed curb wage growth and inflation; A recession due to supply chain problems for companies (for example, the cessation of Russian gas exports to Europe). In this case, while there would be a recession, it would be highly inflationary because it would be linked to scarcity and a sharp rise in commodity prices. This type of recession would not help the ECB get inflation back down, on the contrary.