European Forecast Update

Rapidly worsening energy supply puts the Euro Area growth outlook at risk. 

Economic activity indicators suggest resilient momentum in the first half of 2022, despite the decline in consumer confidence and the sharp fall in Purchasing Manager Indexes in June. 

The energy supply situation is rapidly deteriorating, with Russia further cutting gas deliveries to Europe. Furthermore, problems with key natural gas exporters Norway and the US put further pressure on supply and prices. 

Low unemployment remains a major pocket of strength, with the unemployment rate hitting another record low in May. Business sentiment also shows no signs of deterioration, suggesting investment and employment likely will remain key drivers in growth moving forward. 

GDP growth is expected to slow significantly towards near stagnation during late 2022 and early 2023. We downgraded our 2023 Euro Area GDP forecast to 1 percent growth. 

See Economy Watch: European View (July 2022).