Investment activity has also lost momentum as rising financing costs and uncertainty have made many investment projects less attractive. Moreover, weaker foreign demand has led to a contraction in euro area export levels, but imports have contracted more in comparison, meaning the trade balance remains in surplus overall.
However, these developments were not uniform across sectors and countries. Looking at economic activity by sector (measured by value added), manufacturing contracted in 2023 and construction only increased slightly, slowing from the previous year. Economic activity also slowed in the services sector, but to a lesser extent as these sectors are less energy- and capital-intensive and therefore less vulnerable to rising energy prices and financing costs. In particular, sectors such as information and communications, entertainment, recreation and other services were still able to expand at healthy growth rates.
At a national level, Germany is the worst performing of the major euro area countries, with its GDP expected to decline slightly in 2023 (Figure 1). (The German economy is expected to shrink by 0.3% in 2023 after growing 1.8% in 2022.) The decline in German economic activity was broad-based, with energy-intensive and energy-production-related industries struggling particularly hard. Meanwhile, the Spanish economy grew by 2.5%, aided by continued growth in tourism due to an increase in international tourists. Between these two extremes can be seen the more moderate economic growth of Italy and France.
