Eurozone Recession... Recovery Expected After First Half of Next Year

Draghi "Recession to Continue Until Q2 Next Year
Low Unemployment Suggests Gradual Economic Recovery"
IMF "Inflation Risks Persist Despite Recovery
Premature Rate Cuts Should Be Avoided"

There is a forecast that the Eurozone economy will start to recover again after the first half of next year. However, it is also expected that the Eurozone will not be able to escape the shadow of recession for the time being due to the impact of rapid interest rate hikes.

[Image source=Reuters Yonhap News]

Mario Draghi, former Prime Minister of Italy, said at a conference held in Brussels, Belgium on the 8th (local time), "It is certain that the Eurozone will fall into a recession by the end of this year." Draghi previously served as the President of the European Central Bank (ECB).

He predicted that the recession would continue at least until the second quarter of next year. The Eurozone economy is expected to remain subdued for the time being due to the effects of high-intensity tightening policies. Since July last year, the ECB has raised interest rates from the previous 0.5% to 4.5% over a period of 10 months. With interest rates soaring sharply in a short period, the Eurozone's GDP growth rate for the third quarter of this year recorded a contraction of 0.1% compared to the previous quarter.

However, he forecasted that this recession would not last for a long time. He cited the labor market's resilience, noting that the Eurozone's unemployment rate fell to 6.4% last month, reaching a historic low. Referring to the low unemployment rate, he said, "The starting point of the recession is relatively stable," and diagnosed that this downturn would not have a severe or unstable impact on the Eurozone economy.

There are also forecasts that the economy will recover faster than the second quarter of next year. In its macroeconomic outlook released in September, the ECB stated, "The short-term economic outlook is not favorable, but in the medium to long term, both domestic and external demand will recover, gradually restoring moderate growth." The quarterly GDP growth rate is expected to show growth of 0.1% in the fourth quarter of this year, followed by 0.3% and 0.4% in the first and second quarters of next year, respectively, indicating a gradual economic recovery. The International Monetary Fund (IMF) also expects the Eurozone's economic growth rate, which is projected to be 1.3% this year, to rise to 1.5% next year, signaling a moderate rebound.

However, inflation remains a hidden threat, keeping tensions high. The ECB succeeded in lowering inflation, which had stayed in the double digits for a year, to the 2% range last month and subsequently froze interest rates. But if prices rise again, additional tightening may be necessary. Further interest rate hikes could be a direct blow to the Eurozone economy, which has already been weakened by high-intensity tightening.

Therefore, there are voices advocating that the Eurozone should maintain a high-interest rate stance rather than hastily lowering rates. The IMF stated, "There is a risk that inflation could continue to soar due to rapidly rising wages caused by low unemployment," and emphasized that "the ECB should not cut rates prematurely." Alfred Kammer, IMF's Europe Director, warned, "To control prices, the ECB must maintain interest rates around the historic high of 4% throughout next year," and cautioned, "We should not raise a toast prematurely."

This content was produced with the assistance of AI translation services.