European Central Bank: Recession 'has become more likely'

FRANKFURT, Germany (AP) — The European Central Bank sees an increased likelihood of a recession in the 19 countries that use the euro currency, warning that soaring energy prices and high inflation fed by Russia's war in Ukraine have raised risks for bank losses and turmoil on financial markets.

“People and firms are already feeling the impact of rising inflation and the slowdown in economic activity,” ECB Vice President Luis de Guindos said.

As the bank released its twice-yearly assessment of eurozone financial stability on Wednesday, de Guindos said that "risks to financial stability have increased, while a technical recession in the euro area has become more likely.”

A chart published with the report indicated an 80% chance of recession in the eurozone and United Kingdom in the year ahead and a 60% probability in the U.S.

Many economists and the European Union's executive Commission have already predicted a technical recession for the last three months of year and the first part of next year as sky-high utility prices and food costs rob consumers of purchasing power.

A technical recession is two or more consecutive quarters of declining economic output. Economists on the eurozone’s business cycle dating committee, however, use a broader range of information to determine recessions, such as unemployment figures and the depth of the downturn. The eurozone economy eked out 0.2% growth in the July-September period.

Economists’ expectations are that growth should resume next spring as inflation falls from peak levels and as wintertime pressure on natural gas supplies eases.

High inflation is spreading its effects through the economy, raising the likelihood that banks will see more losses from loans and that companies won't be repaid, the ECB said in the report.

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