Why the euro zone is going to enter recession

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Why the euro zone is going to enter recession

Bring out the bubbly. According to Goldman Sachs economists, it no longer looks like Europe is going to enter a recession.

Economists led by Sven Jari Stehn expect the eurozone's economy to contract in the fourth quarter, but now expect a slight rise in the first quarter. The Goldman team expects the euro area's economy to rise by 0.6% in the year 2023, compared to a previous forecast of 0.1%.

There are three main reasons for this. The industrial sector has been surprisingly resilient. Natural gas prices have fallen sharply. China is reopening earlier than expected. Why is Morgan Stanley so bullish about China? Germany and Italy are still expected to be on the edge of recession due to their previous reliance on Russian gas imports. France and Spain have more diversified energy sources and are more service-sector intensive. The Goldman team believes that the European Central Bank will keep its rates at 3.25% in May, up from 2% currently. The investors seem to be warming to the story of Europe. The Vanguard FTSE EuropeETF VGK, has gained 6% this year, compared to the 1% rise for the S&P 500 SPX, The euro EURUSD, has climbed 12% from its late September low, when it was below parity against the U.S. dollar.