Nadia Gharbi, Senior Economist, at Pictet Wealth Management on 2023 euro area outlook:

• The euro area economy has been surprisingly resilient since the start of the war in Ukraine in February. This can be partially attributed to the post-pandemic rebound in some service industries, as well as government measures to shield consumers and companies from high energy costs. The good health of the labour market has also been a key support. Recent data point to a moderate recession in the euro area stretching from Q4 22 to Q1 23. We expect euro area GDP to contract by 0.2% in 2023, down from growth of 3.3% in 2022.
• We expect headline inflation to fall moderately in 2023, mainly driven by energy. While the easing of supply bottlenecks should also help to slow inflation, rising wages and the indirect effects of the energy shock should ensure price pressures remain elevated. We see headline inflation in the euro area averaging 5.3% in 2023, down from 8.5% in 2022 and core inflation averaging 3.5% in 2023 after 3.9% this year.
• We have adjusted our rates expectations to take account of the hawkish message delivered by the European Central Bank (ECB) at its December meeting. We now see the ECB hiking the deposit rate by 50bp first in February, 50bp again in March and May, before it marks a pause. This will bring the deposit rate up to 3.5% by the end of May 2023.