Content of the article

(Bloomberg) — The risk of a recession in the eurozone has risen to its highest level since July 2020 amid growing fears that a winter energy crisis could trigger a collapse in economic activity.

Content of the article

Economists polled by Bloomberg now put the likelihood of two consecutive quarters of contraction at 80% over the next 12 months, up from 60% in a previous survey. Germany, the bloc’s biggest economy and one of the most exposed to gas supply cuts, is expected to contract as early as this quarter.

Content of the article

Households and businesses in Europe are bracing for the possibility of energy rationing after Russia limited gas shipments to the region and are already grappling with record inflation rates and other bottlenecks supply bottleneck. Business surveys signal that activity has been contracting since July, with few signs of improvement in the near term.

Inflation is now expected to peak at 9.6% in the last three months of the year, nearly five times the European Central Bank’s target. Respondents do not see it approaching the 2% target until 2024.

Content of the article

While ECB officials had predicted that the euro zone economy would only stagnate, not contract, when they updated their policy this month, they increasingly sounded the alarm over the region’s growth and inflation prospects. President Christine Lagarde and her colleagues have justified bigger hikes as a sign of their determination to rein in price growth, though economists say their time is running out to take such action.

Respondents now see the ECB pausing its rate hike cycle earlier, but raising interest rates to a high of 2% for the deposit rate by February. More than half expect a 75 basis point hike at the ECB’s next policy meeting in October.

Chief Economist Philip Lane said last week that the ECB’s unusually large interest rate hike this month was “appropriate”, while warning that the next steps are likely to taper off. Other ECB officials told Bloomberg after the latest decision that they were not ruling out another 75 basis point hike.