■ European Central Bank head Christine Lagarde says Europe’s economic outlook is ‘darkening.’

The head of the European Central Bank said Monday the economic outlook “is darkening” and she expects business activity to “slow substantially” in the coming months as high energy and food prices pushed up by the war in Ukraine sap consumer spending power.

ECB president Christine Lagarde hedged her remarks to the European Parliament regarding whether the eurozone would sink into recession, saying the bank’s baseline scenario was subdued economic growth. But she appeared to qualify that by saying some assumptions in that outlook — such as the remaining supply of Russian natural gas — have been “overridden by events.”

She also mentioned next year would be “certainly, a difficult year” and that the first three months of 2023 “will most likely be negative, as we believe that the fourth quarter of 2022 will be negative as well.” Two consecutive quarters of negative output are one definition of recession, but Europe’s recession dating committee uses a broader range of data including job figures.

Russia’s invasion of Ukraine “continues to cast a shadow over Europe,” driving up energy prices that are dampening consumer spending and production by businesses hit with higher costs, Lagarde said.

Meanwhile, the strong summer rebound in tourism-dependent countries was fading, while weakening global demand would mean less support for the European economy, which is heavily focused on trade. Higher interest rates from central banks in major economies also would dampen demand from outside Europe.

Lagarde urged governments to target assistance programs to the most needy, saying that across-theboard handouts would not help the fight against inflation. With countries clamouring to help households and businesses with soaring energy costs, she said most of the support announced so far was not sufficiently “tailored, temporary and targeted” and that there was “work to be done” to adjust the approach.

The ECB raised interest rates by three-quarters of a percentage point at its last meeting Sept. 8, the biggest rate hike in its history, and says it will be raising rates at its next several meetings.

It is joining the U.S. Federal Reserve and other central banks in sharply raising interest rates to combat a global outbreak of inflation. The 19 countries that use the euro currency saw annual consumer prices rise at a record 9.1 per cent annually in August.

Many economists are predicting the eurozone will sink into a recession at the end of this year and the start of next year. Lagarde has said, however, that the bank’s baseline case is growth will not turn negative but that a much darker worst-case scenario would include a 2023 recession. That worst-case scenario implies that Russia would cut off the last trickle of natural gas flowing through its pipelines to Europe.

Lagarde said the baseline case, established before Russia cut off the major Nord Stream 1 pipeline to Germany, was for 0.9 per cent growth next year. The darker forecast signals a drop of 0.9 per cent. She said her personal outlook was that the outcome would be “somewhere in between” and that more would be known when new forecasts are published in December.

Europe is more exposed to the economic fallout from the war than other major global economies. That is because Europe relied for years on Russia as a major supplier of oil and pipeline gas — ties that have now come unravelled.