International observers highlight a cautious outlook for Europe’s near term market performance. Nomura’s studio service indicates that the Eurozone and the United Kingdom may enter a downturn within the year. The latest survey points to notably weak data, and the probability of a recession has risen. Delays in monetary policy, rising bankruptcies, softer loan demand, and a clouded global picture all loom large, according to Nomura analysts. The question in focus is whether the European Central Bank will move quickly to support growth. The analysts note that neither the ECB nor the Bank of England are likely to alter policy dramatically in an assumed moderate recession, yet they suggest that a rate cut could be appropriate from the fourth quarter of 2023 through the third quarter of 2024. Nomura is a global financial services firm headquartered in Tokyo, with major hubs in Hong Kong, London, and New York, employing about 26,000 people worldwide.
Nomura’s analysis projects that within the euro area, Italy will experience a deeper and longer recession than its peers. The firm forecasts a more pronounced GDP decline there, followed by Germany, France, and Spain. The report outlines expected GDP impacts of 1.6, 1.3, 0.7, and 0.5 percentage points respectively. In Italy, the downturn is projected to span four quarters after commencing in the second quarter of the year. Germany, France, and Spain are expected to enter recessions in the third quarter of 2023, with each lasting roughly three quarters. [Citation: Nomura forecast summary]
six elements
Six pillars underpin Nomura’s view that a rate cut would help the ECB. First, tighter credit terms have hit demand for loans among households and firms across the euro area, with banks tightening loan standards in tandem with the ECB’s policy stance. The same tightening is observed in the United Kingdom.
The second factor is rising corporate bankruptcies. Commercial failures have climbed in both the euro area and the UK, with Nomura estimating a quarterly increase of about 9.0% in the second quarter of 2023 versus the prior quarter, following a 3.5% rise in the first quarter. Liquidations sit at levels not seen since the previous financial crisis. [Citation: Nomura report on bankruptcies]
The third key element concerns wage dynamics in Europe. Real wages showed a modest year-over-year gain of around 4.3%, signaling a softer trajectory ahead and a potential dip in household purchasing power. Inflation bets in the UK remain higher than in the euro area, adding to concerns over consumer spending.
The fourth element highlights the weakest link in the labor market. The UK unemployment rate rose to about 4.2% from 3.5% in mid-2022, and the Sahm rule—an American recession indicator—flashes red for the UK. The threshold suggests a recession could be on the horizon as unemployment climbs from its recent trough. While not universal across all eurozone nations, the UK shows this signal clearly.
The fifth factor places the global context front and center. With Nomura warning of a US recession in the fourth quarter of the year, Europe follows with heightened concern. The spillover effects are predictable, and recent Chinese data remain weak. Even so, the ECB has estimated that a 1% shift in China’s growth would only nudge European growth by about 0.1% to 0.15%. [Citation: Global context note]
The sixth element centers on domestic demand and real GDP. Despite periods of positive real GDP growth, private sector domestic demand in the euro area weakened after the 2022 gas crisis, and imports contracted relative to exports.
Taken together, Nomura’s conclusions carry a cautious tone. The data are challenging to interpret with long-standing low inflation and policy rates, and the ongoing shift in macroeconomic conditions may blur traditional readings across EU member states.