(Reuters) - Citigroup (NYSE:C) 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%, down 0.3 percentage points from their previous forecast.
The ECB's deposit rate now stands at a 22-year high of 3.5% following a 25-basis point (bps) hike last month. Policymakers have signalled more hikes to come to tame sticky inflation, which has remained above the ECB's 2% target.
The change comes as the brokerage cut the GDP view for Europe's biggest economy, Germany, to 0.2% from 1.0% after the country's first-quarter GDP was revised down.
However, Citi raised Italy's real GDP growth forecast to 1.3% from 0.4% previously, citing normalisation 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% real GDP growth in 2024," said Citi economists in a note dated July 4.
In March, Morgan Stanley (NYSE:MS) raised its 2023 GDP view for the euro area by 20 basis points to 0.8%.