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Led by slumping factory output in Germany, the Eurozone will enter a recession this quarter that will endure at least through the first three months of 2023, the European Commission (EC) has predicted.
Soaring energy prices will continue to crimp household spending and curtail factory production, the EC said, contracting the Eurozone’s economy by 0.5 percent this quarter and 0.6 percent during the first quarter of next year.
“The EU economy is at a turning point,” Paolo Gentiloni, the EC’s economics commissioner, said in an 11 November press interview. “Recent survey data points to a contraction for the winter.”
However, the recession will be short and shallow, the EC’s official outlook projected.
Inflation will average 7 percent across the Eurozone next year, the EC now says, higher than the commission had previously forecast.
Inflation in the Eurozone ran at 9.9 percent in September this year and was projected to be 10.7 percent in October.
Germany’s rate of price growth reached 10.4 percent in October, a level not seen since the country was reunified in 1990, the Federal Statistics Office reported.
The country’s overall energy prices were 43 percent higher in October, year on year, with household fuel costs up 55 percent after a 109-percent leap in natural gas prices.
The price of food in Germany in October was 20.4 percent higher than a year earlier.
Inflation will push Germany to a 0.6-percent economic contraction next year, the EC said, which would give the Eurozone’s biggest economy the region’s worst performance.
The EC also had forecast 1.5-percent growth in the Eurozone next year, but has cut that expectation to just 0.3 percent.
Despite the downturn, the European Central Bank (ECB) will add at least two more percentage points to its benchmark interest rate, according to the EC’s latest forecast.
The ECB’s rate is now 1.5 percent. The bank is expected to raise it to at least 2 percent next month
TREND FORECAST: The more the Ukraine War ramps and the colder winter gets, the higher inflation will rise in Germany, which used to receive some 55 percent of its natural gas from Russia.
TREND FORECAST: The more the Ukraine War ramps and the colder winter gets, the higher inflation will rise in Germany, which used to receive some 55 percent of its natural gas from Russia.
The Eurozone will also further drag down as a result of the China slowdown which is a major trading partner of European countries.
China’s industrial sector is closing factories and firing workers because foreign customers have stopped buying, a trend we note in “Chinese Factories Shut Down as Orders for Exports Plummet” in this issue.
The U.K. is entering what the Bank of England predicts will be a “prolonged” recession, as we report in “U.K. Entering Recession, Analysts Say” in this issue.
Economies across the bloc of emerging nations are on increasingly shaky footing, as we have reported in “Emerging Nations Diving Into Debt Default” (12 Jul 2022) and “Strong Dollar Means Weakness in Emerging Nations” (12 Oct 2022), and other articles.
U.S. consumers, which prop up as much as 70 percent of the U.S. economy, are spending as many dollars as ever, but those dollars now buy less because of inflation. That means Americans are buying less stuff, a troubling trend we detailed in “Consumer Spending Flat” (23 Aug 2022).
All of these trends taken together add up to a growing likelihood of a global recession, probably setting in during 2023’s first quarter.