"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 Wall Street bank had in November forecast a 0.1% contraction
for the region. A technical recession is typically defined as
two consecutive quarters of contraction in gross domestic
product (GDP).
Euro zone inflation is expected to be around 3.25% at the end of
2023 compared with 4.50% forecast earlier, the economists said.
In December, consumer price growth across euro zone slowed to
9.2% from 10.1% a month earlier, Eurostat data showed last week.
Core inflation for the region is also seen slowing to 3.3% by
the year-end as goods prices cool, but continued upward pressure
is expected on services inflation due to rising labour costs,
Goldman said.
Given the "sticky" nature of inflation, Goldman expects the
European Central Bank to remain hawkish and deliver 50 basis
points hikes in February and March before slowing to 25 bps for
a terminal rate of 3.25% in May.
For the UK, Goldman sees a smaller contraction of 0.7% in GDP,
compared with an earlier expectation for it to shrink by 1%,
helped by lower wholesale gas prices.
As the UK labour market remains overheated, the U.S. bank sees
another 100 bps worth of hikes by the Bank of England.
(Reporting by Subhadeep Chakravarty in Bengaluru; Editing by
Saumyadeb Chakrabarty)
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