The 20-nation euro zone narrowly avoided recession after the region's economy leveled off at the end of 2023, official figures show.
The single currency area's growth rate was zero in the final quarter of last year, followed by a 0.1% economic contraction in the third quarter. This means that a recession, defined as two consecutive quarters of economic contraction, has just been avoided. Economists polled by Reuters had expected the eurozone economy to contract by 0.1% in the fourth quarter.
According to the EU's statistics agency Eurostat, the eurozone's two biggest economies will both see weak performance in the second half of 2023, with Germany contracting by 0.3% and France not growing for the second consecutive quarter.
There was good news from the other two countries of the Eurozone's Big Four. Italy, which was expected to stagnate, recorded growth of 0.2%, while Spain recorded growth of 0.6%, three times the expected 0.2%.
Among the eurozone's smaller economies, Portugal grew by 0.8% in the last quarter, Austria expanded by 0.2%, while Ireland's economy contracted by 0.7%, marking its fourth consecutive quarterly decline in 2023. became.
Eurostat said the broader 27-nation European Union also saw no growth in the fourth quarter. From the fourth quarter of 2022 to the last quarter of 2023, the euro area grew by just 0.1%, while the EU grew by 0.2%.
“The eurozone economy is narrowly out of recession by the end of 2023,” said Diego Iscaro, head of European economics at S&P Global Market Intelligence. “The outlook for 2024 remains challenging due to weak demand and rising geopolitical tensions.”
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The stagnation in the eurozone economy will put further pressure on the European Central Bank, which sets interest rates for monetary union members, to start cutting borrowing costs.
“The eurozone has just avoided a technical recession,” said Bart Collin, senior economist at ING Bank. Still, the eurozone economy has now been broadly stagnant since late 2022 and has fallen significantly behind the US in terms of GDP in recent years. After a strong post-pandemic reopening phase, the economy is now entering a phase of prolonged stagnation. ”
Since Russia's invasion of Ukraine nearly two years ago, the euro zone has struggled to cope with soaring energy and food prices and damage to business and consumer confidence. Last year, the ECB raised interest rates to the highest level since the euro's inception in 1999.
“Despite a solid start to 2023, the eurozone economy has been weak throughout the year, and we expect this vulnerability to continue into 2024,” said Nicola Mai, an economist at asset management firm Pimco. ” he said.
“The reasons for this continued weakness are clear: Europe is still recovering from a prolonged energy shock and has not experienced as much fiscal stimulus in recent years as the more resilient US economy. Being shorter also means that interest rate increases will be felt sooner.”
