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Citigroup C-N cut its 2023 economic growth forecast for the euro area, citing pressures from a high interest rate environment as the European Central Bank (ECB) has signalled further hikes.

Citi economists now see the euro area’s 2023 real gross domestic product (GDP) at 0.8 per cent, down 0.3 percentage points from their previous forecast.

The ECB’s deposit rate now stands at a 22-year high of 3.5 per cent following a 25-basis point (bps) hike last month. Policy-makers have signalled more hikes to come to tame sticky inflation, which has remained above the ECB’s 2 per cent target.

The change comes as the brokerage cut the GDP view for Europe’s biggest economy, Germany, to 0.2 per cent from 1.0 per cent after the country’s first-quarter GDP was revised down.

However, Citi raised Italy’s real GDP growth forecast to 1.3 per cent from 0.4 per cent previously, citing normalization of tourism inflows and contact-intensive activities, and the effects of fiscal stimulus.

“We still expect monetary tightening to trigger a recession (in Euro Area) in H2 2024 and forecast 0.9 per cent real GDP growth in 2024,” said Citi economists in a note dated July 4.

In March, Morgan Stanley raised its 2023 GDP view for the euro area by 20 basis points to 0.8 per cent.

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