Euro Area Autumn 2022: Recession ahead

Despite the war in Ukraine, the euro area economy continued its recovery from the Corona pandemic until mid-2022. However, the energy price shock and headwinds from the global economy suggest a phase of economic weakness in the quarters ahead. Leading indicators of business and consumer confidence recently showed a marked deterioration in sentiment. Inflation is likely to remain high for some time, thus reducing purchasing power of companies and households and weighing heavily on real private consumption. As a result, economic output is likely to contract for a few quarters. In the course of 2023, this downward trend should gradually reverse, provided energy prices fall somewhat from their current very high levels. As a result, private consumption will stabilize and gradually contribute to an – albeit only moderate – output growth. The recovery is likely to gain grip in the course of 2024, supported by stronger foreign demand.  Overall, gross domestic product in the euro area is likely to rise by 3 percent in the current year, stagnate in 2023 and increase moderately by 1.6 percent in 2024. Consumer prices are expected to rise by an average of 8.1 percent in the current year, the highest rate since monetary union came into being. In 2023, inflation is likely to remain high at 7.2 percent, but will decline to a more moderate level in 2024.