The euro zone’s looming gas crisis and Italy’s political troubles will push the bloc into a mild recession and limit European Central Bank interest rate hikes, JPMorgan forecast.
The bank’s economists cut their economic forecasts, predicting euro zone GDP growth to slow to 0.5% this quarter and and then contract 0.5% in both the fourth quarter and the first quarter of next year.
“Our new forecasts assume gas prices at €/MWh” the bank said.
They added that those higher prices would push up headline inflation by 1.2 percentage points in the near term although it would drop again next year due to the economy’s negative reaction.
“We expect the ECB to deliver another 50 basis points of hikes by year-end,” compared to 75 bps expected previously JPMorgan added.
“We now expect 25 bp in September and 25bp in October” removing an additional 25bp hike that had been forecast for December, the U.S. bank said.
