The euro zone economy is expected to grow only modestly next year, despite wage growth outpacing inflation for the first time in three years, according to a survey of economists by the Financial Times.
Almost two-thirds of the 48 economists surveyed by the FT said the single currency area was already in recession (usually defined as two consecutive quarters of contraction in gross domestic product from the previous quarter). He said he thinks there are.
“I wouldn't call this a full-blown recession. Rather, we would still characterize this as stagnation,” said Paul Hollingsworth, chief European economist at BNP Paribas. “Furthermore, we expect continued gradual recovery rather than further deterioration in 2024.”
Most respondents expect the current economic contraction to be shallow and short-lived, with a return to moderate positive growth in the first quarter of 2024. But it predicted only weak growth next year and warned of high interest rates, potential energy market disruption and geopolitical instability. This could lead to an even deeper economic recession.
On average, economists surveyed by the FT expect the eurozone economy to grow by just over 0.6% next year. Most were more pessimistic than the European Central Bank and the IMF, which expected economic growth in the region to be 0.8% and 1.2% respectively next year.
Economists say the possibility of Donald Trump being elected US president for a second time and Ukraine losing its war with Russia could drag Europe's single currency bloc further into a period of slower growth. He said that this is one of the risks. Former ECB deputy president Vitor Constancio said the big risks for Europe were “a recession in Germany or Italy and a victory for President Trump.”
Holger Schmieding, chief economist at Berenberg, said President Trump's victory was the main threat to Europe's economic outlook. “If the US abandons Ukraine and threatens the EU with a trade war, Europe and the world will suffer even more than the US,” he said.
Mahmoud Pradhan, head of global macroeconomics at Amundi Asset Management, said the biggest risk to the eurozone is that “a prolonged restrictive stance of monetary policy, including an accelerating pace of balance sheet unwinding.'' and a decline in fiscal policy support, especially in Germany.”
Two-thirds of those surveyed believe the German economy will return to positive growth next year, after contracting for most of 2023. But Mark Wall, chief European economist at Deutsche Bank, said “German fiscal policy has tightened significantly” following the country's Supreme Court ruling. A €60 billion hole in the government's budget means the economy will shrink by 0.2%.
Europe enters this winter with nearly full natural gas storage tanks, and more than half of economists expect another energy supply shock next year, even though oil prices have fallen since Israel began its war with Hamas in the Gaza Strip. I think it could still happen.
“Europe remains energy supply constrained and we could see a sharp rise in prices if there are concerns about energy supply,” said Catherine Nice, chief European economist at PGIM Fixed Income.
Inflation in the euro zone is expected to fall to close to the ECB's 2% target within two years, economists say. They expect consumer prices to rise by an average of just over 2.5% next year and just under 2.1% in 2025.
These forecasts are slightly lower than those expected by the ECB, which in early December expected eurozone inflation to average 2.7% next year and 2.1% in 2025.
Average forecasts from FT polls show that wage growth in the euro area is expected to be just under 4% next year, lower than the ECB's forecast of 4.6%, but still the first time that real household incomes have increased. It means to become. Time 3 years later.
Most economists are more pessimistic than the ECB about the outlook for the labor market next year. On average, they expect the unemployment rate to rise to 6.9% by the end of next year from the euro zone's all-time low of 6.5% in October.
“Beyond political and geopolitical risks, the biggest endogenous threat to the eurozone economy may be the weak labor market,” said Sylvain Breuer, chief Europe Middle East and Africa economist at S&P Global Ratings. . “In such a case, the real income gains that depend on a soft-landing scenario could be wiped out.”
Economists expect house prices to fall by an average of 1.6% next year, reflecting slower growth across Europe and a sharp rise in mortgage rates. Nearly half of respondents also said they were worried about a possible crisis in the commercial real estate sector, while a quarter said they were not.
What were your predictions for last year?
not bad. A year ago, while Europe was still grappling with the energy crisis caused by Russia's all-out invasion of Ukraine, there was no explanation for why most economists surveyed by the FT were a bit too pessimistic about both growth and inflation. arrived.
On average, they expect the eurozone economy to contract by just under 0.01% this year, with inflation averaging just above 6%.
The bloc's performance has not been as bad as many feared, thanks to a quick shift away from overreliance on Russian gas imports to other energy sources. The ECB this month predicted growth would be 0.6% this year and inflation would be 5.4%.
