Quick take: Europe – recession inevitable?

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Last autumn, I thought we were on the verge of a significant recession across the major European economies. I expected real gross domestic product1 (GDP) to contract in the second half of 2022 and then fall in 2023 by 1-2% in Germany, France, Italy, Spain, the Netherlands, and the UK. Energy prices were soaring, inflation was high, and the real-income squeeze was intense. Elsewhere, real bond yields (the difference between the rate of inflation and interest rates) had jumped from their lows, sentiment was weakening, and money supply2 growth was dropping significantly, which is usually consistent with a significant downturn. More broadly, concerns were growing about a US recession and persistent Chinese economic weakness.