Goldman predicts eurozone is slipping into a recession
THE eurozone has entered a recession that will run through the second half of this year, according to one of Wall Street’s biggest banks.
Economists at Goldman Sachs said output across the bloc would likely fall 0.1pc in the third quarter, and 0.2pc in the fourth, as Russia’s gas cuts bite.
The end of a rebound in services sector activity as the pandemic wanes and fresh political turmoil in Italy would add to the pressure, they said.
Sven Jari Stehn, chief European economist at Goldman Sachs, said: “Looking across countries, we have Germany and Italy in clear recession in the second half, while Spain and France continue to grow.
“The risks to our forecast are skewed toward a sharper recession in the event of an even more severe disruption of gas flows, a renewed period of sovereign stress or a US recession.”
Goldman said further disruption to energy flows from Russia, including a “complete gas supply stop”, remains “a live possibility”. Economists warned this could lead to a GDP slump of up to 2.7pc.
It came as the collapse of Mario Draghi’s government sent Italian household confidence crashing down to its lowest levels since the pandemic hit, with hard-right parties now looking to seize power in Rome. Business and consumer confidence slipped back sharply in July as the return of political turmoil and debt worries prompted jitters at credit ratings agencies.
Household confidence fell a further 3.5 points to 94.8 – the lowest level since May 2020 – while business sentiment reversed to a 15-month low. Confidence is also being sapped by the growing threat of energy shortages this winter, with Italy one of the most exposed economies if Russia turns off the gas.
Italy is facing early elections in September after Mr Draghi, the former ECB president, resigned following the collapse of his cross-spectrum coalition. The fresh vote is likely to install a Rightwing coalition including the hardline populist Lega and Brothers of Italy.
S&P Global Ratings cut its ratings outlook for Italy from positive to stable over concerns crucial economic reforms will be scuppered by a new government.