Risk Of Recession In H1 2024 But Stagnation Likely

Q4 euro area GDP was flat after declining 0.1% in the previous quarter. Despite energy prices remaining low through the winter, the chance of recession remains real and is being monitored closely. With inflation falling further below 3% in January, there are growing calls for the ECB to cut rates. Our recession probability estimate signals that there is still a risk of recession in the euro area in H1 2024 with growth positive again in the second half.

• Our probit model starting in 1998 estimated the risk of recession 6-months ahead at above the key 50% level for the five months from July 2023 with the peak in September at 68% but it fell below 50% in December and further in January to 28%. Since it didn’t rise close to 100%, which usually happens when a recession occurs, then persistent stagnating growth is likely rather than a contraction.
• The downward move in recession probability over the last two months has been driven by the 6-month change in the economic sentiment indicator turning positive, rising real equity prices, lower real oil prices in euros and low unemployment.
• Our calculation starting in 1985 has signalled little chance of a euro area recession 6-months ahead since Q3 2022.
• It is worth noting that econometric calculations are only estimates and not predictions. Also, euro area recessions are dated by a committee rather than defined as two consecutive quarters of negative growth.

Source: MNI - Market News/Refinitiv