2023 Europe Outlook: Milder Recession, Higher Terminal Rate (Team Europe)

Goldman Sachs predicts that the European economy will enter into a recession in the coming winter due to an energy crisis that will significantly slow down energy-intensive industries and lower the real income of households. However, the data has remained stronger than expected, and the gas market's rebalancing has decreased the chances of energy rationing, leading to a less severe recession. Furthermore, governments have provided significant fiscal support, leading to a shallower recession than previously anticipated. The Euro area economy is forecasted to contract by only 0.7% from the 4th quarter of 2022 to the 2nd quarter of 2023 compared to the previously forecasted 1.1%.