Recession fears in the Eurozone are on the rise

Recession risks are mounting globally, including in the eurozone. Growing recession fears have resulted in large drops in oil prices and in further strengthening of the US dollar. Our tentative look at the eurozone shows the economy is slowing and that the risk of a recession is real.

What you will learn:

• We now see gas rationing in the eurozone this winter as increasingly likely. Together with a substantial increase to the gas price forecast, we expect inflation in the eurozone to peak at a higher rate and will significantly cut our growth forecast in the next revision. We expect our eurozone growth outlook to be cut to just above 1% next year, with activity stagnating in winter quarters.
• However, as presented in our research, the countries that are more dependent on Russian gas could experience much larger shocks. The direct impact of 10% gas rationing in Q4 and governments prioritising gas supply for households would cause severe contractions in industry, which could result in a direct loss in annual gross value-added (GVA) of up to 2% for the most dependent countries in the eurozone, such as Germany and Italy.
• Although monthly industrial activity data for May are showing slightly positive outturns, survey indicators, such as the final PMI for June and the Sentix survey of investors, continued to send out worrying signals.