DAVOS - An improved economic outlook gives Europe the chance to double-down on efforts to boost its industrial competitiveness in key sectors from clean energy to semiconductors, EU Economy Commissioner Paolo Gentiloni said on Wednesday.
Speaking on the sidelines of the World Economic Forum in Davos, Gentiloni said the bloc could avoid an all-out recession this year and get away with what he called a "limited contraction" of the economy in the first quarter.
"The key word of the moment is shallow," Gentiloni told Reuters, using that word to characterise the depth of any recession a few weeks before the Commission releases its new economic forecasts.
While he noted "enormous risks" such as the Ukraine war to Europe's short-term fortunes, he said the fall in energy prices, the fact that inflation appeared to have peaked late last year, and relatively buoyant labour markets gave cause for hope.
Gentiloni noted that the region had thus far avoided its worst fears of a year ago, namely that energy snags would result in mass blackouts for business and consumers, corporate bankruptcies and large-scale social unrest.
"Overall this less pessimistic outlook should encourage us in the difficult path we have," he said, referring to short-term challenges such as safeguarding next winter's energy supplies while making the economy more resilient and green in the long-term.
Gentiloni acknowledged differences between EU capitals on how to fund a new green deal unveiled by Commission President Ursula von der Leyen on Tuesday, but urged those countries to first define the purpose and scope of the effort.
"We should avoid starting from the end of the discussion. We know that common funding for the EU is always difficult to address," he said, urging capitals first to accept the principle that this should be a joint EU effort and to work out what the priority projects should be.
Gentiloni identified semiconductors and areas such as green hydrogen as possible areas of priority, citing the need for joint EU projects to achieve the levels of scale required for a bloc of 450 million citizens.
Europe has in recent months become more pragmatic about its dealings with China amid concerns ranging from human rights to Beijing's interpretation of trade rules. Gentiloni said that was leading to a new readiness to envisage industrial cooperation at EU level to make the bloc less dependent on others.
"Five to 10 years ago, industrial policy at European level was taboo," he said. "The challenge that China is making every day more clear is that we have to catch up in some sectors if we want this famous strategic autonomy in coming years."
(Reporting by Mark John in Davos; Editing by Alex Richardson)