60% of euro area sovereigns likely to be in recession in 2023: Moody's

Euro area’s outlook for sovereign creditworthiness in 2023 is negative, as a mild recession is forecast to be triggered, as per Moody’s report.

Energy uncertainty, potentially severe tightening in financial conditions, and possible political disruption in countries with limited fiscal space and weak institutions elevate risks to euro area’s already weak baseline economic and fiscal forecasts. Moreover, if it materialises, stagflation could have severe credit consequences for some southern European sovereigns.

Over the longer term, high energy prices could also weaken the region's price competitiveness and lead to a structural decline in its industrial bases in the absence of effective government action. Although it is not Moody's base case, an escalation of the Russia-Ukraine conflict involving NATO and/or EU countries would have negative credit implications.

“Support measures at the national and European Union (EU) level and easing disruption to global supply chains will soften some of these effects, but we still forecast 60 per cent of euro area sovereigns will be in recession in 2023,” said Heiko Peters, vice president-senior analyst at Moody's. “The contractions we forecast in Germany, Italy, and Slovakia this year will push GDP levels below pre-pandemic levels.”

ALCHEMPro News Desk (DP)