Recession Risk Low

Q1 euro area GDP rose 0.3% q/q following two slightly negative quarters which the business cycle dating committee are unlikely to declare a recession. Our probability estimates are not signalling a risk of a recession in H2 this year either. With growth likely to stay below trend and inflation heading towards the ECB’s target, an easing cycle looks likely to begin soon.

• Our recession probability indicator 6-months ahead estimated from 1985, covering four recessions, has suggested almost no risk of a downturn since the start of last year. In April, it again signalled no risk 6-months ahead.
• The one from 1998, using three recessions, has signalled a probability of around a third throughout this year. Since that is under the breakeven 50% mark, growth in the euro area is likely to struggle rather than experience a prolonged contraction. The April probability rose moderately to 36% from 33% in March. It has been around this rate since December 2023.
• The 3-month change in the real repo rate, real equities, economic sentiment indicator, real 10 year yield and 6-month change in unemployment have all helped to bring the recession probability lower. Real oil prices in euros, real money supply and yield curve have added upward pressure.
• It is worth noting that econometric calculations are only estimates and not predictions.

Source: MNI - Market News