Economists warn that the euro zone will plunge into recession in the coming months.
Since Russia invaded Ukraine in February, the 19-member zone that shares the euro currency has been under a lot of pressure. A combination of sanctions against the Kremlin, an abrupt end to Russian gas imports, and the need to provide financial support to households and firms has darkened the outlook for the bloc.
Holger Schmieding, chief economist at Berenberg, told CNBC that consumer confidence has plummeted so badly that the recession will not be shallow.
Consumer confidence fell to a record low in September according to data from the European Commission. Since then, it has improved slightly, but households still worry about their finances.
The euro zone's gross domestic product will fall in the fourth quarter and the first quarter of next year, according to Schmieding. Two consecutive quarters of contraction is a definition of a recession.
The region's growth is thought to have slowed in the third quarter from the previous three months. Economic contraction was registered by Belgium, Latvia and Austria over the last three months.
"I wouldn't call it shallow, it will be deeper than what the council of the European Central Bank expects."
There is a chance of a recession in the region. The risk of a recession has increased according to Christine Lagarde, president of the European Central Bank.
The forecasts published by the central bank do not show an economic contraction. They think the GDP rate will be 3.0% this year and 0.9% in the years to come. Next month's figures will be updated.
The energy crisis and monetary policy tightening may cause the recession to drag into the second quarter of next year.
There is a chance that temperatures will go down significantly at the start of the winter season in mid-December. The European Central Bank has raised rates three times this year and is expected to do so again. Economic growth can be stifled by aggressive rate increases.
Germany, traditionally the economic powerhouse of the euro area, is expected to face one of the biggest declines in the euro zone next year, with Morgan Stanley forecasting a contraction of 2%.
Natural gas prices should remain high. Corporate profits and real incomes are adversely affected by inflation. Analysts at the investment bank said that monetary policy tightens financial conditions.
If the euro zone emerges out of recession in the first quarter of next year, economists say the rest of the year will be difficult.
Marco Valli, UniCredit's chief European economist, told CNBC Tuesday that he expects the recovery to be slow.
When asked if it would be difficult for the euro area this year, Valli said no.
Felix Hufner said that if the recession ends in the second quarter, the recovery will be a weak one.
European leaders have managed to guarantee that natural gas storage is full for this winter, but they will have to find new supplies next year if they want to stop relying on Russian hydrocarbons.
The euro zone's economic prospects next year are not exciting, according to Hufner.
Economists say that the picture is not as bad as it was during the 2008 global financial crisis or during the recent swine flu. In 2009 and 2020, the euro zone contracted.
Fiscal policy is one of the main reasons for that.
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