US-based S&P Global Market Intelligence recently forecast imminent—but relatively short and sharp—recessions in the eurozone and European Union (EU). It expects cumulative real gross domestic product (GDP) losses to exceed 1 per cent, driven primarily by weakness in private consumption as soaring inflation hammers household real incomes in the region.

Energy shortages due to unusually cold weather could lead to much deeper near-term output contractions than forecast, concentrated in the industrial sector, it said.

US-based S&P Global Market Intelligence recently forecast imminent—but relatively short and sharp—recessions in the eurozone and European Union (EU). It expects cumulative real gross domestic product (GDP) losses to exceed 1 per cent, driven primarily by weakness in private consumption as soaring inflation hammers household real incomes in the region.

Weakness in investment is also expected given tightening financial conditions and increased uncertainty over the outlook for demand.

Exports are projected to weaken following deteriorating growth prospects in key export markets, including the United States and the United Kingdom. Both are expected to enter recessions shortly.

Given the material risk of larger or longer recessions in Europe, the entity offers two alternative scenarios. In the first scenario of energy shortage, a shortage of gas is not expected in Europe this winter. A sustained drop in temperatures would materially change this assessment. In such a scenario, energy rationing would most likely follow, centered on the industrial sector.

Energy prices in this scenario are kept higher for longer than in the base case and supply shortages weigh heavily on industrial production. The implied recession in the eurozone is still relatively short, lasting from the fourth quarter of 2022 to the first quarter of 2023, but output losses are much larger, it noted.

In the second scenario of global recession, the quarter-over-quarter real GDP declines in the eurozone continue for an additional quarter out to the second quarter of 2023, with the cumulative contraction exceeding 3 per cent, Ken Wattret, vice president, economics, S&P Global Market Intelligence, wrote.

Again, even with a subsequent strong rebound, the estimated annual contraction in eurozone real GDP in 2023 is well over one percentage point below the base case at around 2 per cent in the second scenario.

A vigorous pick-up in growth is expected from the second quarter of 2024 onwards. By that point, consumer price inflation is expected to have fallen markedly, supporting household real incomes and spending. Central bank policy is also forecast to be in easing mode by then, given improving inflation prospects.

Fibre2Fashion News Desk (DS)