Global investment banks Goldman Sachs and JP Morgan predict an imminent recession in the euro zone. A Goldman Sachs economist said, “Risks to our forecast are skewed toward a more severe disruption in gas flows, another period of sovereign stress, or, in the case of a U.S. recession, a more abrupt downturn.”
Goldman Sachs Forecasts
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Two of the world’s leading investment banks, Goldman Sachs and JP Morgan, released reports Wednesday, each predicting an imminent recession in the euro zone.
Goldman Sachs analysts, led by chief European economist Jari Steen, expect a recession in the eurozone to occur later this year and last through the end of the year. They also expect a contraction of 0.1% in the third quarter and 0.2% in the fourth quarter, with growth returning in 2023.
“By country, Germany and Italy will enter a clear recession in the second half, while Spain and France will continue to grow,” the Goldman Sachs economist elaborated.
The risks to our forecast are skewed toward a more severe impediment to gas flows, a resurgence of sovereign stress, or a more sharp recession if the U.S. enters a recession.
Economists highlighted several reasons for a recession, including a looming gas crisis and political troubles in Italy that could delay EU aid payments.
JPMorgan Forecasts
JPMorgan warned in a note released Wednesday that the eurozone will fall into a mild recession by early next year. Economists at the bank lowered their economic forecasts. They now expect eurozone GDP to grow 0.5% this quarter, followed by a 0.5% contraction in both the fourth quarter of this year and the first quarter of next year.
Analysts at JP Morgan added:
expect the ECB (European Central Bank) to implement another 50 basis points of hikes by the end of the year.
Analysts at the European Central Bank revised down their previous forecast for three separate hikes of 75 basis points, with 25 basis points expected in September and October.
The recession forecast by the two global investment banks comes after the International Monetary Fund warned Tuesday that both Europe and the U.S. would see virtually no growth next year if Russia completely halts European gas supplies and further cuts oil exports.
Meanwhile, the U.S. economy contracted for the second consecutive quarter from April to June. The Bureau of Economic Analysis reported Thursday that the country’s GDP declined 0.9% on an annualized basis during this period. However, President Joe Biden has repeatedly dismissed fears of a recession. In addition, Treasury Secretary Janet Yellen said,Thursday that the U.S. economy is in transition, not in recession.
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