Avatar

Bloomberg: The risk of recession in the euro area has increased over



Reading time: 2 minutes

The risk of a recession in the euro zone has reached the highest level since November 2020, in the context in which the energy crisis threatens to further fuel the increase in inflation that has already reached record levels, according to a panel of economists and economic analysts questioned by the publication Bloomberg.

The probability that the aggregate GDP of the euro area will decrease for two consecutive quarters has increased to 60%, from 45% as reported in the previous survey, carried out last month. Before the Russian army invaded Ukraine, the risk of recession was estimated at only 20%.

As for the largest economy of the euro zone, Germany, it remains one of the most exposed to the reduction of natural gas supplies from Russia, and it is likely that this quarter the authorities in Berlin will announce a stagnation of the country’s economy.

Rising prices are hitting eurozone companies and households hard, and Russia’s threats to completely cut off supplies of energy raw materials are likely to bring further price increases, especially in the latter part of this year and early next year. In addition, bottlenecks in supply chains are exacerbated by the severe drought that has hit the European continent, causing an unprecedented drop in water levels in major rivers.

Average inflation is currently expected to reach close to 8% in 2022, which is almost 4 times higher than the European Central Bank’s (ECB) target of 2%. Next year, average inflation could reach 4%, with the ECB’s target to be reached in 2024 at best.

Economists believe that the ECB will raise interest rates again by half a percentage point in September, at a pace similar to that applied in July. The anticipated measure would take the deposit rate to 1% by the end of the year, with another rise of a quarter of a percentage point also expected in March 2023.