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A Deutsche Bahn passenger train outside Frankfurt am Main Central Station, Germany, earlier this month. Unionized train drivers went on strike in early January to strain supply chains and deal with new problems. It will hurt the country's sputtering economy.
London
CNN
—
Europe's economy narrowly avoided ending up in recession in 2023, official data showed on Tuesday.
Gross domestic product (GDP) in the 20 euro-using countries stagnated in the October-December period compared with the previous three months, according to initial estimates released by Eurostat. GDP decreased by 0.1% in the July-September period.
The broader European Union economy, which includes 27 member states, also avoided a recession, usually defined as two consecutive quarters of economic contraction.
The data shows that in 2023, GDP grew by 0.5% in both the eurozone and the EU.
Europe's economy has struggled to regain momentum after the pandemic, hobbled by high inflation and rapid interest rate hikes to fight the pandemic. The spike in energy prices in 2022, triggered by Russia's full-scale invasion of Ukraine earlier that year, will be particularly damaging, with natural gas prices remaining high in Europe.
Europe's biggest economy is in a slump, with German production falling last year for the first time since the pandemic began. Germany's GDP fell by 0.3% in the fourth quarter from the previous quarter, the country's statistics office confirmed on Tuesday.
Better-than-expected growth in Italy and Spain in the last three months of 2023 (production expanded by 0.2% and 0.6%, respectively) appears to have helped keep Europe's economy stable at the end of last year.
France's economy, Europe's second-largest, slumped in the fourth quarter but grew by 0.7% in 2023.
Christoph Weil, senior economist at Commerzbank, said Tuesday's euro zone data overall was “no reason to celebrate”.
“This does not significantly change the situation. Large-scale monetary policy tightening caused economic growth to stagnate in the summer,” he wrote in a note. “The economy is unlikely to emerge from this downturn before spring.”
He added that the European Central Bank (ECB) was unlikely to cut key interest rates before the summer because “inflation rates remain high,” adding that the economic impact of cuts could be felt until 2025. He pointed out that the gender is low.
Rising public borrowing costs raise the cost of capital and tend to constrain borrowing by households and businesses, which in turn suppresses spending in the economy as a whole.
Jack Allen Reynolds, eurozone economist at Capital Economics, is similarly pessimistic about the outlook for Europe.
“The region has avoided a technical recession. But this is just semantics. The big picture is that euro area GDP will remain flat from Q3 2022, when gas prices soar and the ECB starts raising interest rates. ”, he said in a memo.
He expects the eurozone economy to be “flat” in the first half of 2024 “as the effects of past monetary tightening continue to spill over and fiscal policy becomes more restrained.”
