The Euro Area experienced very weak growth in the final quarter of 2022, with several economies reporting negative real GDP prints. However, early 2023 data suggest that a trough may have been achieved as business activity and consumer sentiment indicators improving. Core inflation, the key gauge of underlying price trends, climbed to new heights in February. This will keep the pressure on the ECB to maintain a restrictive monetary policy stance, despite increasing financial sector risks. For the balance of 2023 we expect the European economy to avoid recession, but instead exhibit stagflationary characteristics, with weak growth and high inflation.