(Erste Bank Research Team)
Global economy cooling down visibly
In the course of the first half of the year, the headwinds for the global economy increased significantly. The outbreak of war in Ukraine intensified inflationary pressure at the global level, forcing the US Fed and the ECB to tighten their monetary policy more rapidly than had been expected at the beginning of the year. In addition, unexpectedly strict and prolonged Covid-related lockdowns weighed heavily on China’s growth in April and May. However, there are increasing signs that the economy in China is bottoming out after several pro-growth policy measures were taken.
Eurozone economy suffers strongly from high inflation
The war in Ukraine and historically high inflation rates are weighing on the economic outlook for the Eurozone. Only thanks to low comparative figures from the previous year do we expect GDP growth of 2.7% in 2022. For the coming quarters, we expect the economy to remain roughly stagnant with regard to this forecast. Private consumption in particular is suffering from sharp real wage losses. Only a decline in inflation momentum could be an initial supporting factor for the economy.
Energy crisis poses significant downside risks to economy
Since the beginning of 2021, European prices for electricity and gas have increased sevenfold, posing a historic challenge to industry as well as households. Due to the energy crisis, the downside risks for the Eurozone economy are unfortunately very high. In our current baseline scenario, we expect energy prices to stabilize and decline from late fall. Should prices remain at current levels, we will have to adjust our GDP forecasts for 2023 downward.
Eurozone inflation to rise significantly in 2022
Energy and food prices in particular lifted Eurozone inflation to a record 8.6% y/y in June. Continuously rising electricity and gas prices increase the risk of a prolonged high level of inflation in 2H. By contrast, significant declines in prices for oil, metals and food are currently increasing the likelihood of falling inflation rates toward the end of the year.
US: Economy comes under pressure
After a negative 1Q, growth in 2Q should be weak. A renewed decline in economic output cannot be ruled out either, which would mean a recession. The inflation rate will probably remain high for the time being, and we expect only slight declines in the coming months.