Goldman Sachs no longer sees economic recession in the eurozone after data showed that the region has become more resilient near the end of 2022. Aside from that, natural gas prices have declined sharply, while China abandoned Covid-19 restrictions earlier than expected.
GDP forecast is now revised to +0.6% in 2023, much better than the earlier projection of -0.1%.
However, economists warned that growth may be weak during winter because of the energy crisis. Overall inflation would also fall faster than expected to around 3.25% by the end of 2023.
"We also expect core inflation to slow due to lower commodity prices, but see continued upward pressure on services inflation due to rising labor costs," they said. "Given more resilient activity, sustained core inflation and hawkish comments, we expect the European Central Bank to tighten significantly in the coming month," they added.
European stock indices are in an upward trend.
EUR/USD is also bullish, extending its rise for the second month in row.
Goldman Sachs repeated its call for a half-point interest rate hike at the ECB's February and March meetings, followed by a final quarter-point move in May, which will bring the deposit rate to 3.25%.