The euro economy and probably the currency faces more economic headwinds after the European Union downgraded its growth forecast for the entire eurozone.
With rising prices hitting demand and the threat of winter energy shortages draining confidence, gross domestic product is likely to advance 2.6% this year and 1.4 percent.
This is down from May predictions for gains of 2.7% and 2.3%, according to new forecasts from the European Union executive department as reported by Bloomberg.
Inflation, already at a record that’s more than four times the European Central Bank’s 2% target, is now seen at 7.6% in 2022 and 4% next year, up from 6.1% and 2.7%.
It is noteworthy that these predictions may even change before they are officially published Today. However, and increasing number of economists see a recession in Europe as inevitable.
The task of the ECB implementing its first interest-rate increase in more than a decade it going to be very difficult in an environment where growth is slowing.
According to Bloomberg analysts “the euro area’s rebound from the pandemic will be weaker than anticipated while inflation will be faster because of Russia’s war in Ukraine, according to draft projections by the European Commission”.
European equity markets are set to open lower as the market continues to digest the 40-year high in US inflation and the news regarding the lowering of EU growth.
Much attention still remains on the critical break of parity for the EURUSD pair. Saxo Bank foreign exchange strategists wrote in a recent note that
“Given the nature of Germany’s exports which are commodity-price sensitive, it remains hard to imagine that the trade balance could improve significantly from here in the next few months given the expected slowdown in the eurozone economy.”
This is a fair statement; however, we must factor in that the Federal Reserve still needs to act aggressively to tame runaway inflation in the United States.