THE European Central Bank sees an increased likelihood of a recession in the 19 countries that use the euro currency, warning that soaring energy prices and high inflation fed by Russia’s war in Ukraine have raised risks for bank losses and turmoil on financial markets.
“People and firms are already feeling the impact of rising inflation and the slowdown in economic activity,” ECB vice president Luis de Guindos said.
As the bank released its twice-yearly assessment of eurozone financial stability on Wednesday, de Guindos said that “risks to financial stability have increased, while a technical recession in the euro area has become more likely.”
A chart published with the report indicated an 80 percent chance of recession in the eurozone and United Kingdom in the year ahead and a 60 percent probability in the US.
Many economists and the European Union’s executive Commission have already predicted a technical recession for the last three months of year and the first part of next year as sky-high utility prices and food costs rob consumers of purchasing power.
A technical recession is two or more consecutive quarters of declining economic output. Economists on the eurozone’s business cycle dating committee, however, use a broader range of information to determine recessions, such as unemployment figures and the depth of the downturn. The eurozone economy eked out 0.2 percent growth in the July-September period.
Economists’ expectations are that growth should resume next spring as inflation falls from peak levels and as wintertime pressure on natural gas supplies eases.
High inflation is spreading its effects through the economy, raising the likelihood that banks will see more losses from loans and that companies won’t be repaid, the ECB said in the report.
Meanwhile, uncertainty about how high and how long inflation will go “has heightened the risk of disorderly asset price adjustments in financial markets.” Beyond that, pressure has grown on people, companies and governments that are more in debt than others.
Inflation, which came in at an annual rate of 10.7 percent in the eurozone in October, has been fed by Russia cutting off most natural gas to Europe amid the war in Ukraine. That sent natural gas prices sharply higher and raised the price of electricity and industrial processes that use lots of heat or natural gas. (AP)