Bloomberg: Economists predict a recession in the area

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The risk of a recession in the euro zone has reached its highest level since July 2020, amid growing concerns that an energy crisis in the winter will lead to a decrease in economic activity, according to the estimates of a group of economists polled on this topic by Bloomberg. writes Agerpres.

Economists polled by Bloomberg estimate there is an 80% chance of two consecutive quarters of economic contraction, up from 60% in the previous survey. In July, the probability of a recession in the euro area was estimated at only 45%, while before the Russian army invaded Ukraine the risk of recession was estimated at only 20%.

Germany, Europe’s largest economy and the most exposed country to the reduction of gas supplies, could contract as early as the third quarter.

Households and companies in Europe are bracing for the possibility of energy rationalization after Russia cut gas supplies to the region while simultaneously battling record inflation and other supply bottlenecks. Surveys regarding the activity in the business sector show that it has started to contract since July and there are few signs of improvement in the short term.

Inflation is expected to reach a peak of 9.6% in the last three months of the year, almost five times above the objective of the European Central Bank. Respondents interviewed by Bloomberg believe that inflation will approach the ECB’s 2% target only in 2024.

Even if the ECB officials forecast that the euro zone economy will only stagnate, but not contract, they still sounded the alarm on the economic growth and the inflation forecast in the region. ECB President Christine Lagarde and her colleagues have justified the significant interest rate hike as a decision to keep price rises under control, but economists believe the time has run out to take such measures.

Respondents expect the ECB to stop its borrowing cost hike cycle sooner, after raising the benchmark interest rate to a peak of 2% by February. More than half of respondents expect a 75 basis point hike at the ECB’s next monetary policy meeting in October.

The ECB’s chief economist, Philip Lane, declared the other day that the biggest interest rate increase in the institution’s history was an “adequate” one, and signaled that future increases are likely to be lower. Instead, other ECB officials told Bloomberg that they do not rule out a further increase in the cost of credit by 75 basis points.