Eurozone faces mounting recession risk: Bloomberg

By Al Mayadeen English
Source: Bloomberg
13 Jul 2022 11:12
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The main causes, according to analysts, are gas shortages and record-high inflation.

The rising cost of living in Europe is putting a strain on businesses and consumers.

The risk of a eurozone recession is increasing, according to economists polled by Bloomberg on Tuesday, in light of surging energy and food prices and a declining European economy.

The likelihood of a significant contraction has risen to 45%, up from 30% in the previous survey and 20% prior to the start of the war in Ukraine, which resulted in sanctions against Moscow and a reduction in Russian energy flows, primarily to Germany.

“We assume a recession based on the already implemented oil embargo and the effect of higher input prices on industry,” Erik-Jan van Harn, a strategist at Rabobank, said as quoted by Bloomberg.

“The German economy is already slowing down and the trend is clearly downward,” the expert stressed.

The rising cost of living in Europe is putting a strain on businesses and consumers, who had only recently begun to return to pre-pandemic levels of spending and production capacity.

At the same time, reduced Russian natural gas shipments threaten winter energy supplies.

Analysts continue to expect Eurozone inflation to peak in the current quarter. Inflation forecasts have been raised from the previous poll, but price growth is still expected to slow to the European Central Bank's target of 2% in 2024.

The eurozone "is likely to enter a mild recession in the second half of this year, but this will not be sufficient of a drag on demand to return inflation to target, leaving the ECB on a path of gradual rate hikes," according to TD Securities economists led by James Rossiter.

It is worth noting that trading data reported on Tuesday that the euro fell to parity with the dollar, before settling at $1.0005, the lowest point ever recorded since December 2002.

Since the start of this year, the euro recorded a loss of 12% of its value against the dollar. Markets did not anticipate such a rapid fall in July, labeling the direction of EU/USD as bearish and predicting it could fall below the $1.0000 mark in the near term.