Morgan Stanley economists said they now expect the euro area to slide into a mild recession in the fourth quarter of this year amid reduced energy supplies from Russia.

In a report published Wednesday, economists including Jens Eisenschmidt wrote that the economy would contract for two quarters before resuming growth in the second quarter of next year driven by an increase in investment.

They changed their forecast amid the likelihood of reduced natural gas flows from Russia into Europe and as indicators of consumer and business morale slide alongside persistently high inflation.

“The risks around the outlook have intensified, Mr Eisenschmidt and colleagues wrote.

Despite the slowdown, they said with inflation so high they still expected the European Central Bank to lift its deposit rate at every meeting this year to 0.75 per cent in December, although they conceded it could stop hiking after September if the outlook deteriorates. - Bloomberg