Eurozone recession warning raised

The energy squeeze is projected to inevitably drag down economic activity

Euro area countries face an 80% chance of a recession in the next 12 months due to soaring energy prices along with a severe power-supply crunch, according to economists polled by Bloomberg.

The projection, which is up from 60% in a previous survey, puts the risk of recession in the single-currency zone at the highest level since July 2020, the agency reported on Monday.

Germany, the bloc’s biggest economy, is reportedly among the most exposed to gas supply reductions, and is forecast to begin shrinking as soon as this quarter. 

The situation is being inevitably exacerbated by the latest halt of gas supplies from Russia. In August, Nord Stream 1 was shut down indefinitely due to technical problems as a result of sanctions. Russian gas is now flowing to the region at a fraction of its former volumes via the one remaining transit line through Ukraine and the TurkStream pipeline through Turkey.

READ MORE: EU country hit by worst inflation since 1970s

Record-high inflation rates and other supply bottlenecks across the euro area keep dragging down growth, analysts note, saying inflation is projected to peak at 9.6% during the fourth quarter of 2022. The polled economists don’t expect it to drop to the 2% target of the European Central Bank until 2024.

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