Morgan Stanley has revised its economic growth forecasts for the euro area for this year and next year, anticipating a slowdown in economic growth in the second half of this year and adjusting its projections accordingly.
The investment bank said that despite the resilience shown by the 19-nation strong euro area, the continuing challenges posed by Russia’s invasion of Ukraine along with the resurgence of Covid cases in China are likely to weigh on growth in the economic area known informally as the Eurozone.
Energy flows from Russia likely to be significantly reduced as European nations seek to starve Vladimir Putin’s war machine of funds, whilst strict measures imposed by Beijing in the face of rising Covid cases have heavily impacted on Chinese production and global supply chains.
In a note to investors, Morgan Stanley said it had lowered its 2022 euro area GDP forecast to 2.7%, down from the previous forecast of 3%. The bank also dropped its 2023 growth forecast by a whole percentage point to 1.3%.
“Despite the resilience in economic activity shown so far against geopolitical headwinds, we think more material impacts will show in the second half of the year, through various channels of transmission,” the note said.
The decision follows a similar move by the International Monetary Fund (IMF), who last week reduced their growth forecast for the euro area from 3.9% to 2.8%.