New eurozone baseline forecast sees recession with balanced risks
Although the risk of hard energy rationing has diminished, demand destruction triggered by the surge in energy prices has led us to cut our eurozone baseline forecast to a recession during the winter. Surging gas and electricity prices will hit consumer incomes and spending and industrial activity harder and prompt a stronger policy tightening response by the ECB. As a result, we now see GDP growth at 0% in 2023 (from a previous 0.9% expansion).
What you will learn:
- Rising energy prices will also cause inflation to peak higher and later than previously expected, with the period of high prices extending further into next year.
- Despite the gloomy outlook, we think the risks around our new baseline are balanced.
- Extreme price volatility will continue, but as shown by the sharp falls in gas prices last week, movements can happen in both directions depending on political developments and how the news flow shapes market sentiment.
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