Not yet out of the woods

Question: What is your 2023 outlook for Europe's economy and markets?

Silvia Dall'Angelo: The outlook for Europe has clearly improved in the last few months. Gas prices have fallen sharply from their peak in summer 2022. Good luck has clearly played a role as winter temperatures have been mild, but preparedness and the long tail of the COVID recovery dynamics have also underpinned economic resilience in Europe. European governments implemented targeted fiscal measure to shield households from large increases in utility bills, and also they made sure that gas storages were plentiful before the winter season. Overall, we are looking at a growth rate of about 0.6% for 2023, which is higher than our expectation late last year of about a flat growth performance for Europe. So for 2023, it looks like Europe might offer some good opportunity from an investment perspective. Looking ahead though, there are still some challenges. For a start, energy prices have come down, but they're still structurally higher compared to the period before the Russian invasion of Ukraine. On top of that, the ECB is now on a tightening campaign, which is also likely to drag on growth in the eurozone. So looking ahead, the eurozone is still facing some challenges.

Question: Is a European recession expected in 2023?

Silvia Dall'Angelo: It looks like the eurozone managed to escape a recession at the end of 2022. Indeed, the preliminary data for Q4 2022, suggests that the eurozone managed to expand by 0.1% on a quarterly basis. Of course, there were divergencies across countries with Italy and Germany posting small declines, and France and Spain increasing a little. We're now looking at a period of stagnation, really, in the eurozone economy in the first half of this year. Going forward, the eurozone cycle is quite sensitive to what happens in the U.S. If the U.S. falls into a recession in the second half of 2023, the eurozone will likely follow with a lag that typically is in the range of two to three quarters. So we might see a more sobering picture for the eurozone and the global economy overall later in 2024.