JP Morgan Forecasts Eurozone Recession As Gas Crisis Looms

• The euro zone's looming gas crisis along with Italy's renewed political troubles will push the bloc into a mild recession by early next year and limit European Central Bank interest rate hikes, JPMorgan has warned.
• The bank's economists cut their economic forecasts, predicting eurozone GDP growth to slow to 0.5% this quarter and then contract 0.5% in both the fourth quarter and the first quarter of next year, representing two consecutive quarters of contraction- the informal definition of a recession.
• "Our new forecasts assume gas prices at 150 euros/MWh," the bank said in a note on Wednesday, July 27, 2022, adding that combined with strains like in Italy, it would add up to a 2% hit to the euro zone GDP.
• It was also added that those higher prices would push up headline inflation by 1.2 percentage points in the near term although it would drop again next year due to the economy's negative reaction.
• "We expect the ECB to deliver another 50 basis points of hikes by year-end," compared to 75 bps expected previously JPMorgan added. "We now expect 25 bp in September and 25bp in October" removing an additional 25bp hike that had been forecasted for December, the U.S. bank said.

(Source: Reuters)