Goldman Sachs Global Economics Analyst A Mild Recession in Europe In contrast to the US, the Euro area and the UK are probably in recession. The reason for this is the much bigger and more drawn-out increase in household energy bills, which should boost headline inflation to peaks of 12% in the Euro area and 11% in the UK, far higher than in the US (Exhibit 12, left panel). Exhibit 12: A Bigger Energy Shock in Europe Implies a Worse Outlook for Inflation and Real Income Source: Haver Analytics, Goldman Sachs Global Investment Research In turn, high inflation is set to weigh on real income, consumption, and industrial production. We forecast further declines in real income of 1½% in the Euro area through 2023Q1 and 3% in the UK through 2023Q2, before a pickup in H2 (Exhibit 12, right panel). The plunge in timely and forward-looking surveys of gas-intensive European industries such as chemicals and metals also suggests that rising energy costs will lower production (Exhibit 13). As a result, we look for cumulative declines in real GDP of 0.7% in the Euro area (2022Q4-2023Q2) and 1.7% in the UK (2022Q3-2023Q2). 16 November 2022 11