Published on Monday, November 28, 2022

Europe | Long-overdue recession

The European economy is slowly entering a long-overdue recession, expected almost since the war in Ukraine began, which may finally be taking place in the last months of the year. It is expected to be moderate and linked to factors that will take us back to more traditional economic cycles.

Key points

  • Key points:
  • What is hurting eurozone growth stems from rising natural gas prices, which have accelerated since March. The feared lack of gas supply this winter is not going to happen, thanks to a reduction in consumption of about 7% compared to historical figures and imports from new sources (mainly Norway).
  • However, their high prices are affecting energy-intensive sectors and countries (mainly Germany), while the high inflation generated (10.6% in October) is taking its toll on household consumption.
  • The third quarter of the year has provided positive surprises thanks to some supportive factors - the inertia of the post-pandemic spending rebound, most recently visible in services, and the savings accumulated during the months of confinement - but several indicators are already in negative territory, such as economic confidence and retail sales.
  • The other factor that is guiding the European economy into declines in activity is the European Central Bank's raising of interest rates, although its influence is probably less than that of the US Federal Reserve, which had a faster reaction.

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