Is the eurozone heading for a recession? 

The European Commission’s latest economic forecast has raised concerns over the risk of a recession in the eurozone, as it’s predicted that most EU countries are facing further economic difficulties in the last quarter of 2022. 

This follows fears from earlier in the year over Europe’s economic outlook, as the euro fell to the lowest value against the dollar in nearly two decades. Eurozone inflation reached a record high in October of 10.7%, which was mostly driven by energy and food prices. 

 

In a statement, the Commission said: “The EU is among the most exposed advanced economies (to high prices), due to its geographical proximity to the war and heavy reliance on gas imports from Russia. The energy crisis is eroding households’ purchasing power and weighing on production.”

At a press conference, the EU economy commissioner Paolo Gentilnia said the economic situation in Europe has started to deteriorate further and the region could be heading for economic contraction for at least the next two quarters. 

The European Commission has predicted that inflation will hit an average of 9.3% in the EU for 2022 and 8.5% in the eurozone. It also forecasts that prices will peak towards the end of the year and inflation still be high throughout 2023. 

The average inflation for 2022 was the highest in the Baltics, where it was forecast to be 19.3% in Estonia, 18.9% in Lithuania, and 16.9% in Latvia this year.

Although inflation is expected to remain high next year at around 6.1% in the eurozone and 7% in the EU, the forecast predicts that prices will start to come down, with inflation decreasing to 2.6% in the eurozone and 3% in the EU as a whole by 2024.

However, these forecasts depend on the situation in Ukraine and other geopolitical tensions stabilising or not escalating further, and the sanctions against Russia remaining in place. If this doesn’t happen, there could be more uncertainty and inflation could remain high.