Euro-area economic output will shrink in the second quarter because of Russia’s war in Ukraine, with inflation likely to climb toward 8%, according to an analysis by Goldman Sachs.
Financial conditions have tightened, trade spillovers have become more relevant and the chance for production cuts amid energy-supply disruptions has increased, economists led by Jari Stehn said Thursday in a report to clients. At the same time, households will suffer more than initially anticipated from surging costs related to oil and gas.
The dire outlook comes as European Central Bank officials gather in Frankfurt to assess the implications of the invasion. Initially billed as a meeting to chart an exit from large-scale asset purchases and negative interest rates, Russia’s attack has pushed policy makers back into crisis mode.
Concerns have increased in recent days that stagflation will take hold in the region — as well as in other developed parts of the world. Consumer prices are already surging at a record 5.8% pace — nearly three times the ECB’s target.
Goldman Sachs predicts euro-area inflation will peak at 7.7% in July and average 6.8% in 2022. The economy is now forecast to expand 2.5% this year — down from 3.9% seen previously. Output is projected to increase 2.2% in 2023.
“Risks are tilted to the downside due to the potential for further escalation of the conflict, which could entail significant further disruptions to commodity flows,” the economists said. They see growth this year as weak as 1.4% in an adverse scenario, and say additional fiscal support will cushion the war’s economic impact.
ECB policy normalization will now be delayed, they said, with asset purchases running “well into” the second half of the year and interest rates unlikely to rise until 2023.
TLDR; blame Russia
it was 8 before russia invaded. Now it’s probably over 10.
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Euro-area economic output will shrink in the second quarter because of Russia’s war in Ukraine, with inflation likely to climb toward 8%, according to an analysis by Goldman Sachs.
Financial conditions have tightened, trade spillovers have become more relevant and the chance for production cuts amid energy-supply disruptions has increased, economists led by Jari Stehn said Thursday in a report to clients. At the same time, households will suffer more than initially anticipated from surging costs related to oil and gas.
The dire outlook comes as European Central Bank officials gather in Frankfurt to assess the implications of the invasion. Initially billed as a meeting to chart an exit from large-scale asset purchases and negative interest rates, Russia’s attack has pushed policy makers back into crisis mode.
Concerns have increased in recent days that stagflation will take hold in the region — as well as in other developed parts of the world. Consumer prices are already surging at a record 5.8% pace — nearly three times the ECB’s target.
Goldman Sachs predicts euro-area inflation will peak at 7.7% in July and average 6.8% in 2022. The economy is now forecast to expand 2.5% this year — down from 3.9% seen previously. Output is projected to increase 2.2% in 2023.
“Risks are tilted to the downside due to the potential for further escalation of the conflict, which could entail significant further disruptions to commodity flows,” the economists said. They see growth this year as weak as 1.4% in an adverse scenario, and say additional fiscal support will cushion the war’s economic impact.
ECB policy normalization will now be delayed, they said, with asset purchases running “well into” the second half of the year and interest rates unlikely to rise until 2023.
TLDR; blame Russia
it was 8 before russia invaded. Now it’s probably over 10.