Goldman Sachs no longer expects recession in the eurozone in 2023

Goldman Sachs expects the eurozone economy to grow by 0.6 percent this year from a previous forecast of a contraction thanks to falling natural gas prices and the opening of China’s borders, Reuters reports.

“We maintain our view that Euro area growth will be weak over the winter months given the energy crisis but no longer look for a technical recession,” Goldman Sachs economists led by Sven Jari Stehn said in a note.

The Bank of Wall Street forecast a 0.1 percent contraction for the region in November. A technical contraction is usually defined as two consecutive quarters of decline in gross domestic product (GDP).

Economists forecast that inflation in the eurozone will be around 3.25% by the end of 2023, down from an earlier forecast of 4.50%. Consumer price growth in the euro area slowed to 9.2% in December from 10.1% a month earlier.

Core inflation in the region will also slow to 3.3% by the end of the year as commodity prices fall, but pressure on services inflation is expected to continue due to rising labor costs, Goldman noted.

Given the “sticky” nature of inflation, Goldman expects the European Central Bank to remain aggressive and raise the rate by 50 basis points in February and March before cutting it to 25 basis points with a final rate of 3.25% in May.

In the U.K., Goldman is forecasting a smaller GDP contraction of 0.7% compared to earlier expectations of a 1% contraction, helped by lower wholesale gas prices.