Deutsche Bank takes an axe to eurozone GDP forecast, now sees -2.2% in 2023

The energy crisis is set to hit the eurozone economy hard.

Deutsche Bank has slashed its estimate of 2023 GDP to -2.2% from -0.3% in mid-July.

“The energy crisis in Europe means that 2023 will likely be behind only 2009 and 2020 as the worst year for the European economy since WWII,” writes Deutsche Bank’s Jim Reid.

Economists there see Germany contracting 3.5%, France’s economy shrinking 1.2%, Italy -1.8% and Spain -1.0%.

“Upside to our view may emerge if fiscal shielding proves very effective or gas prices fall markedly in 2023. But there are also factors that could result in more downside: a colder winter or greater amplification of the competitiveness shock,” write DB economists led by Peter Sidorov.

Even with the revisions lower, they see eurozone inflation running at 6.2% next year in what’s looking like a true stagflationary environment. Within that, core is expected up 4.0%.

Looking further out, 2024 GDP is now seen at +1.2% from 1.0% and 2025 is seen at +1.0%.