Eurozone inflation on the rise, recession risk: Reuters poll By Reuters

© . FILE PHOTO: Full shelves of fruit are pictured in a supermarket during the spread of the coronavirus disease (COVID-19) in Berlin, Germany, March 17, 2020. REUTERS/Fabrizio Bensch (Correcting the split in fare expectations in Section 4) By Swathi Nair BENGALURU () – Recession risks in the euro area are mounting, with inflation rising in the euro-zone for the remainder of 2022 and the European Central Bank likely to raise its deposit rate towards the end of the year, a poll showed. While inflation hit another record high of 7.5% in March, it is months away from a peak as the Russian war in Ukraine continues to push food and energy prices up, leading to speculation that higher price increases may run deep. With the eurozone economy recovering, unemployment at record lows and almost every other central bank of the same kind now tightening its policies, it looks like the ECB will end its asset purchases this year and lower interest rates for the will increase for the first time in more than ten years. Of the 41 of 53 respondents in an April 1-6 poll who predicted deposit rates will rise from a record low of -0.50% this year, 31 expect it to happen in the fourth quarter, and ten say it will. will happen as fast as July-September, up six in a poll last month. No one expected a rate hike by the middle of the year. However, policy space for the ECB is shrinking, with a median 30% chance of a recession this year and the eurozone’s proximity to the war between Russia and Ukraine making it most vulnerable. “There is a risk that the economic impact of the war may be slightly worse than expected, or that the situation will deteriorate further,” said Gordon Scott, euro area economist at RBC. “So a recession remains a meaningful possibility, about a 30-40% chance sometime in the next year.” Forecasters in March who expected the recovery to continue as businesses reopen after the wave of Omicron variants have slashed their economic growth forecasts for the quarter to just 0.4%, down from what was a month ago. was expected. It was then forecast to rise to 0.6% in the third and fourth quarters. The eurozone economy is expected to grow by 2.9% this year and 2.3% next year, compared to 3.8% and 2.5% forecast a month ago. Growth forecasts for 2022 in Germany, Europe’s largest economy, were nearly halved to 2.2%, from 4.0% in the previous quarterly poll in January. Expected growth in France and Italy was reduced to 3.2% and 2.8%, from 3.7% and 4.2% respectively. All but two economists said a further escalation of the war in Ukraine is the biggest risk to the eurozone economy in the next 12 months. The two said the biggest risk is a resurgence of COVID-19. Inflation forecasts for this year are up for the 10th consecutive survey — to 7.3%, 6.9% and 5.8% for the second, third and fourth quarters, respectively, from 5.3%, 4.5% and 3.3% in the March poll. above the ECB’s 2.0% target. The bloc’s three largest economies – Germany, France and Italy – saw significant improvement in annual inflation forecasts for this year. While ECB President Christine Lagarde has said the bloc is not at risk of stagflation – an ongoing period of sluggish growth and high price increases – 21 of 38 economists, or 55%, saw a high or very high chance of it happening in the next two years. . The remaining 17 said the risk was low. About half of respondents, 18 out of 39, said it is only a matter of time before wage growth follows a key indicator of second-round inflation effects. The others, 21, disagreed. “A price-wage spiral cannot be ruled out… Record high inflation could mean workers and unions with bargaining power will push harder for higher settlements,” said Simon Wells, chief economist at HSBC. “However, so far the demands have been fairly limited, although the fall will be a test with some big deals for the clock.” The unemployment rate in the eurozone, which fell to a record low of 6.8% in February, is expected to rise only slightly this year and next, averaging 6.9%. (For other stories from ‘ global long-term economic outlook package polls)

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