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InfraCap Note: Euro Zone Now-Cast Indicates A Deep Recession is Underway


Euro Zone Now-Cast Indicates A Deep Recession is Underway

InfraCap Commentary, October 4, 2023 ~ The most recent Euro Zone Now-Cast indicates that GDP for the 3rd quarter is declining at .9% quarter over quarter or at a 3.6% annual rate of decline. If this trend continues, there will be a very deep recession as the average Eurozone recession results in a GDP decline of only 2.2%.


The ECB has executed the largest and fastest monetary tightening in history by increasing rates by 4.5% within a year and shrinking the monetary base by over 14% in 2023. Large monetary contractions normally cause recessions as interest rates rise, the housing sector and other investment declines, and there are significant layoffs in these sectors. Consequently, given the magnitude of monetary tightening, it is not surprising that the Eurozone is entering a deep recession.

Global interest rates rose sharply after the ECB reduced the Eurozone monetary base by over $500 million in less than a week in early July. We forecast that global interest rates will decline in early 2024 as the ECB will be forced to fight the deep recession by implementing rate cuts and increasing the monetary base. This expected ECB move should end the global liquidity squeeze currently driving global rates higher.


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