A recession has looked unavoidable for some time and we now think it will be deeper than most anticipate. Manufacturing output is already declining and services activity is slowing. What’s more, inflation is in double-digit territory and does not seem to have peaked. Admittedly, global supply chain difficulties have eased and shipping costs have collapsed, but in Europe shortages are still off the scale compared to pre-Covid times, and may even have got slightly worse in September. Moreover, business surveys show that companies plan to go on raising prices, and the labour market is still very tight. Against this backdrop the ECB has little choice but to tighten policy rapidly in the coming months but that in turn will further squeeze households’ disposable incomes.
Become a client to read more
This is premium content that requires an active Capital Economics subscription to view.
Already have an account?
You may already have access to this premium content as part of a paid subscription.
Sign in to read the content in full or get details of how you can access it
Register for free
Sign up for a free account to:
- Unlock additional content
- Register for Capital Economics events
- Receive email updates and economist-curated newsletters
- Request a free trial of our services