Goldman Sachs says it no longer expects a recession in euro zone in 2023

Goldman Sachs says it no longer expects a recession in euro zone in 2023

Goldman Sachs GS-N -0.59%decrease said on Tuesday it expects the euro zone economy to grow by 0.6 per cent this year, compared with its previous forecast of a contraction, thanks to a fall in natural gas prices and the reopening of China’s borders.

“We maintain our view that Euro area growth will be weak over the winter months given the energy crisis but no longer look for a technical recession,” Goldman Sachs economists led by Sven Jari Stehn said in a note.

The Wall Street bank had in November forecast a 0.1 per cent contraction for the region. A technical recession is typically defined as two consecutive quarters of contraction in gross domestic product (GDP).

Euro zone inflation is expected to be around 3.25 per cent at the end of 2023 compared with 4.50 per cent forecast earlier, the economists said.

In December, consumer price growth across euro zone slowed to 9.2 per cent from 10.1 per cent a month earlier, Eurostat data showed last week.

Core inflation for the region is also seen slowing to 3.3 per cent by the year-end as goods prices cool, but continued upward pressure is expected on services inflation due to rising labour costs, Goldman said.

Given the “sticky” nature of inflation, Goldman expects the European Central Bank to remain hawkish and deliver 50 basis points hikes in February and March before slowing to 25 bps for a terminal rate of 3.25 per cent in May.

For the U.K., Goldman sees a smaller contraction of 0.7 per cent in GDP, compared with an earlier expectation for it to shrink by 1 per cent, helped by lower wholesale gas prices.

As the U.K. labour market remains overheated, the U.S. bank sees another 100 bps worth of hikes by the Bank of England.


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