CNBC: Euro zone to face deep recession

16 November 2022 64
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Source: CNBC

Author: Silvia Amaro

Article: based on the original article

Publication date: November 16, 2022

 

Economists anticipate that the eurozone will enter into a recession in the coming months, adding that it is likely to be deep.

 

As reported by Holger Schmieding, chief economist at Berenberg, earlier this month, because there is a sharp fall in consumer confidence, recession is likely to be deep.

 

According to the report from the European Commission, the EU's executive arm, consumer confidence hit all-time low in September. The index has improved slightly since then. However, households still express concerns about the future and their finances.

 

The euro area GDP is projected to fall 1.7% all in all in the fourth quarter and the first quarter of 2023. Two consecutive quarters of decline in GDP constitute a recession.

 

Preliminary estimates show that in the third quarter, Eurozone GDP growth slowed to 0.2%, down from 0.8% in the second quarter. Among countries that faced the contraction of economic activity in the last quarter are Belgium, Latvia and Austria.

 

As reported by Spyros Andreopoulos, a senior European economist at BNP Paribas, earlier this month, the recession will be deeper than the ECB (European Central Bank) council's expectations.

 

The bank started to acknowledge that euro area could fall into a recession. ECB President Christine Lagarde warned earlier this month that the risk of recession had risen.

 

However, according to annual growth forecasts released by the ECB, the region will face no recession. They currently point to a GDP of 3.1% in 2022 and 0.9% in 2023. The figures will be updated next month.

 

Besides, the ECB went for three interest rate hikes this year, and it is expected to keep raising rates. ECB's aggressive policy may lead to slowing economy as the price of borrowing rises.

 

According to Morgan Stanley estimates, an annual decline in the eurozone of 0.2% will be seen. Germany, which is considered the economic center of the euro area, will see the sharpest decline of 0.7%.

 

Marco Valli, chief European economist at UniCredit, said Tuesday that the economic recovery would go slow as rising interest rates are an obstacle for a steeper rebound.

 

Forecast: EURUSD decline within 1-2 years

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