Euro Area to Suffer First Recession Since Pandemic, Survey Shows

(Bloomberg) — The euro zone won’t escape a first recession since the pandemic, with its economy shrinking for a second straight quarter in the final three months of the year, according to a Bloomberg poll of analysts.

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The 0.1% contraction now predicted between September and December compares with the previous survey’s projection for output to remain unchanged. A mild recovery is seen at the beginning of 2024.

“We doubt that we’re at the start of an upswing,” said Joerg Angele, an economist at Bantleon Bank. “Headwinds remain strong, especially the ones stemming from the massive increase of interest rates.”

The weakness is led by Germany, Europe’s largest economy, which is struggling to shake off its manufacturing malaise. Beset by a budget crisis and weak global demand, the country is expected to experience a 0.2% downturn in the fourth quarter — more than the 0.1% decline initially projected.

The survey results contrast with the European Commission’s November forecast, which foresees the 20-nation euro area returning to growth this quarter, helped by a steep retreat in inflation and a robust jobs market.

Eurostat data Thursday attributed the region’s recent weakness to changes in inventories, showing household consumption remaining strong. But shrinking industrial production numbers provided a reminder of the region’s enduring weakness.

While a major headwind has come from tighter monetary policy, the recent slowdown in consumer-price growth has surprised markets and policymakers alike, prompting wagers on the European Central Bank to cut rates as soon as the spring.

Economists lowered their projections for inflation through September 2024. But the quarterly forecasts were lifted higher beyond that, and don’t envisage price gains easing to the ECB’s 2% target during the period covered in the poll.

–With assistance from Joel Rinneby and Barbara Sladkowska.

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