Capital Economics: The European economy avoided the worst

The Eurozone has avoided the worst-case scenario, Capital Economics estimates, as it sees a slight improvement in the outlook for the economy in recent weeks.

This estimate is made public after the new forecast by Goldman Sachs, according to which the Eurozone will avoid recession.

However, Capital Economics opines that Eurozone GDP likely contracted in the fourth quarter of 2022 and will contract again in the current quarter due to unfavorable developments in real household income, rising interest rates and slowing external demand. .

Against this background, the analyst house predicts that GDP will shrink by about 1% from the highs to the lows in this recession and then show a slow growth.

The positive signs

Among the factors signaling an improvement in the outlook for the Eurozone, Capital Economics points to business surveys showing that activity is no longer showing much contraction, the assessment that inflation has hit a “ceiling” and falling wholesale gas prices.

However, the outlook is weighed down by the effects of monetary tightening and still strong inflationary pressures.

Core inflation is expected to remain above 2% this year, with Capital Economics forecasting that the European Central Bank will raise the deposit rate in the coming months, however, to as much as 3%, up from 3.5 % discounted by markets.

Elsewhere, consumer indicators point to very subdued household spending at the start of the year, employment indicators remain resilient, while credit to the private sector has slowed.

On the fiscal front, Capital Economics warns that deficits will be higher this year than governments expect.

Read the News today and get the latest news.
Follow Skai.gr on Google News and be the first to know all the news.