European Central Bank Expects Eurozone Recession

The European Central Bank announced that recessions are expected in 19 eurozone countries, and warned that high energy prices and inflation increase the risk of financial market turmoil.

“People and businesses are already feeling the impact of higher inflation and slower economic activity,” said ECB Vice President Luis de Guindos.

When the bank announced its biennial eurozone financial stability assessment on Wednesday, de Guindos said: “Risks to financial stability have risen as a technical recession in the eurozone has become more likely.”

A chart released with the report points to an 80% chance of a recession in the eurozone and the UK next year, and a 60% chance in the US.

Many economists and the European Commission have already predicted a technical recession during the last three months of the year and into the first half of next year as soaring utility and food prices rob consumers of purchasing power.

A technical recession is two or more consecutive quarters of decline in economic output. However, economists from the Eurozone Business Cycle Committee use a wider range of information to detect recessions, such as data on unemployment and the depth of contraction. The eurozone economy has grown by 0.2% since July to September.

Economists expect growth to pick up again next spring as inflation eases from peak levels and winter pressures on natural gas supplies ease.

The European Central Bank said in a report that high inflation is spreading through the economy, increasing the likelihood that banks will incur large losses on loans.

Source: AB