Eurozone slides into recession for first time since coronavirus crisis

On Thursday, Eurostat reported that the Eurozone had entered a recession for the first time in three years.

Rising energy prices were the catalyst for the recession.

Morgan Stanley predicts that the EUR/USD rate will drop to 1.02 by the end of the year.

Eurostat revised their initial estimate of the Eurozone GDP in the first quarter, decreasing it by 0.1%. This is a downgrade from the previously reported figure of no change.

Revisions to the data for the fourth quarter of last year showed that the Eurozone economy still decreased by 0.1%, as initially reported. However, the figures for certain countries were adjusted downwards, resulting in the same overall decline.

Nyuts, a spokesman for the European Commission, confirmed that the Eurozone is in a recession, though he pointed out that it is not a deep one.

Bloomberg reports that the Eurozone has experienced its first semi-annual recession since the onset of the coronavirus pandemic, as GDP has declined by 0.1% for the second consecutive quarter.

Germany's economic resilience, which has been a driving force in Europe for decades, is deteriorating, posing a risk to the entire region. In the first quarter of this year, the country's GDP decreased by 0.3% compared to the previous quarter, following a 0.5% drop in the quarter before.

European politicians and ECB officials have been adamant that the recession can be avoided, despite inflation reaching its highest level ever in the Eurozone.

The European Commission forecasted in mid-May that the EU would be able to dodge recession, with GDP expected to increase by 1.0% in 2023 and 1.7% in 2024.

Credit Suisse states that EUR/USD is still progressing towards testing the group of significant supports at 1.0557 - 1.0501.

Morgan Stanley predicts that EUR/USD will drop to 1.02 by the end of the year, which is attributed to investors' defensive attitude, the beneficial effects of carry trades, and sluggish regional economic growth.

Societe Generale believes that EUR/USD could rise back above 1.15 in this cycle, however, this will only be possible if European data shows signs of improvement.

Bank of America predicts that the EUR/USD pair will remain weak and have further downside potential as long as global inflation, particularly US inflation, remains high. A sustained rally in EUR/USD will only be possible if the Federal Reserve changes its stance.