Citigroup revised its 2023 growth forecast for the Eurozone downwards due to the European Central Bank’s (ECB) signal for more interest rate hikes and the pressures created by high interest rates.
Macroeconomic experts predicted that the euro area’s real gross domestic product (GDP) for 2023 would be 0.8%, down 0.3 points from previous forecasts.
Citigroup’s forecast revision came as it cut its GDP outlook for Germany from 1.0% to 0.2%. Lowering its expectations for Germany, Citigroup raised its real GDP growth forecast for Italy to 1.3% from 0.4% before.
Citigroup economists made the following statements in the note dated July 4:
“We expect monetary tightening to cause a recession in the regional economy by the second half of 2024.”
Morgan Stanley, another private research institution, thinks otherwise. Morgan Stanley had raised its 2023 GDP outlook for the euro area by 20 basis points to 0.8%.
Inflation Forecast from ECB
According to the latest European Central Bank survey, the forecast for the next 3-year CPI (Consumer Price Index) remained stable at 2.5% in May. Annual inflation expectations, on the other hand, decreased slightly to 3.9% compared to April. The expectation in April was 4.1%.
The ECB’s deposit rate rose to 3.5%, a 22-year high, after a 25bps increase last month. Policy makers are giving signals that interest rate hikes will continue to meet the ECB’s 2% inflation target.
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