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Euroze economy is set to shrink.

 

Eurozone economy

The eurozone economy is set to shrink next year as high inflation, and potential energy shortages drag down output and trigger a reversal in the fortunes of the labour market, according to a Financial Times poll of economists. Almost 90 per cent of the 37 economists surveyed said they thought the region was already in recession, and most forecast gross domestic product would contract over the next year. «Gas markets in Europe remain a key risk,» said Chiara Zangarelli, an economist at Morgan Stanley. Most economists thought Europe was past the worst of its energy crisis, sparked by Russia’s invasion of Ukraine.

«The tail risk of gas rationing has likely been avoided this winter, but the energy supply for the next winter is still open,» said Sylvain Broyer, chief economist for Europe, Middle East and Africa at S&P Global Ratings. European countries have managed to lower their dependence on Russian gas imports by turning to Norway, the US and the Middle East and switching to alternative energy sources. But economists warn that, without Russian supplies, it will be much harder to refill Europe’s crucial gas storage facilities ahead of next winter. «There is still the risk of an energy supply crisis this winter. »

The downturn, combined with much higher mortgage costs across Europe, was also expected to trigger a sharp reversal in the region’s housing market. However, the economists added that Eurozone inflation would likely stay above the ECB’s 2 per cent target for at least two more years. On average, those polled expect prices to rise by just over 6 per cent next year and almost 2.7 per cent in 2024. Earlier this month, the ECB predicted price growth would average 6.3 per cent next year and 3.4 per cent in 2024.

The poll found that wage growth is expected to be 4.4 per cent next year, below the 5.2 per cent the ECB forecast. Unemployment was predicted to rise from a record eurozone low of 6.5 per cent in October to 7.1 per cent late next year.

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