Goldman Sachs now forecasts the euro zone economy to expand by 0.6% this year, backtracking on its previous prediction of a looming recession. The more optimistic outlook is the result of falling natural gas prices and the reopening of China’s borders,
A note from the bank stated: “We maintain our view that Euro area growth will be weak over the winter months given the energy crisis but no longer look for a technical recession.”
In November, the Wall Street bank predicted a 0.1% decrease for the region. A technical recession is often defined as the decrease of gross domestic product for two consecutive quarters (GDP).
The researchers predict that the inflation rate in the Euro zone would be about 3.25 percent by the end of 2023, as opposed to the 4.5 percent predicted earlier.
In December, consumer price rise in the euro zone dropped to 9.2% from 10.1% in November, according to figures released by Eurostat last week.
Goldman predicts that core inflation for the region would decline to 3.3% by the end of the year as goods prices drop, but that services inflation will continue to rise due to rising labor costs.
Given the “sticky” character of inflation, Goldman anticipates that the European Central Bank will maintain its hawkish stance and implement rate hikes of 50 basis points in February and March, before easing to 25 basis points for a final rate of 3.25 percent in May.
As a result of decreased wholesale gas prices, Goldman predicts a 0.7% decline in GDP for the United Kingdom, as opposed to an earlier forecast of a 1% decline.
As the UK labor market remains overheated, the U.S. bank anticipates the Bank of England to raise rates by another 100 basis points.