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Fitch expects a recession in the eurozone and UK economy next year

07 December 2022 10:33 (UTC +04:00)

"Fitch Ratings" international rating agency announced its outlook for the financial and banking sector of Western European countries, APA-Economics reports.

"We expect increasing pressure on borrowers in 2023 due to the economic slowdown, high inflation, and rising interest rates. However, 90% of western European bank ratings are on Stable Outlook, with rating headroom bolstered by strong earnings in 2022, prudent provisioning, and the capital buffers accumulated in recent years.

Fitch expects a recession in the eurozone (driven by German and Italy) and the UK in 2023 and weak GDP growth in other western European countries. Central banks have raised policy rates rapidly to tackle high inflation, and Fitch expects the ECB’s Main Refinancing Operations rate to reach 3% by March 2023, from 0% at the start of 2022.

The German, Italian, and UK banking sector outlooks are deteriorating, largely due to the prospect of recessionary pressures. In contrast, the banking sector outlooks in the other western European countries are neutral, balancing our expectations of contained asset-quality deterioration, fewer downside risks, and the positive impact of higher interest rates on revenue. Southern European banks’ commercial net interest margins will benefit the most from rising interest rates due to a high proportion of variable-rate lending and relatively slow repricing of deposits" the report says.