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Estimates Suggest Low Risk Of Recession

EUROZONE

Q1 euro area GDP rose 0.3% q/q, the strongest quarter since Q3 2022, and the technical recession in H2 2023 was revised away with now only Q4 posting a small negative. We are now past the time that our probability indicator signaled the chance of a recession was above 50%. The June update is suggesting little chance of a prolonged contraction around the turn of the year.

  • The 6-month ahead recession probability indicator estimated since 1985 has been at zero since the end of last year. Real rates, REER and real equity prices, whereas real oil prices and economic sentiment have put upward pressure on the probability.
  • Our estimation from 1998, and so includes 3 recessions rather than 4, has had the probability of a recession 6-months ahead at around 30% for the last seven months but that is lower than where it was through H2 2023 and remains below the key 50% level. While a recession is currently improbable, growth is likely to remain soft encouraging further ECB easing. Oil prices and economic sentiment have boosted this estimate.
  • It is worth noting that econometric calculations are just estimates and not projections.
Euro area 6-month ahead recession probability estimates

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Q1 euro area GDP rose 0.3% q/q, the strongest quarter since Q3 2022, and the technical recession in H2 2023 was revised away with now only Q4 posting a small negative. We are now past the time that our probability indicator signaled the chance of a recession was above 50%. The June update is suggesting little chance of a prolonged contraction around the turn of the year.

  • The 6-month ahead recession probability indicator estimated since 1985 has been at zero since the end of last year. Real rates, REER and real equity prices, whereas real oil prices and economic sentiment have put upward pressure on the probability.
  • Our estimation from 1998, and so includes 3 recessions rather than 4, has had the probability of a recession 6-months ahead at around 30% for the last seven months but that is lower than where it was through H2 2023 and remains below the key 50% level. While a recession is currently improbable, growth is likely to remain soft encouraging further ECB easing. Oil prices and economic sentiment have boosted this estimate.
  • It is worth noting that econometric calculations are just estimates and not projections.
Euro area 6-month ahead recession probability estimates

Keep reading...Show less