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Shoppers at the Beau Beau market in Paris, France, earlier this year. The eurozone economy contracted in the third quarter, raising the possibility of a recession.
London
CNN
—
The euro zone economy is at risk of slipping into recession later this year after official figures on Tuesday showed output contracted slightly in the third quarter.
Initial estimates released by the European Union's statistics agency Eurostat showed that the gross domestic product (GDP) of the 20 euro-using countries fell by 0.1% in the July-September period compared to the previous three months.
The decline follows a narrow 0.2% rise in the April-June period and highlights the fine line between contraction and growth in the eurozone. GDP stagnated in the last three months of 2022 and the first quarter of this year.
“The big picture is that the eurozone is in trouble. It has grown by just 0.1% over the past year, and the most timely business surveys consistently show that activity fell at the beginning of 2019. It has been pointed out that [the fourth quarter]” Jack Allen Reynolds, deputy chief euro area economist at Capital Economics, wrote in a note.
He added that the economy “will continue to be weak” regardless of whether the eurozone falls into a technical recession, defined as two consecutive quarters of decline in gross domestic product (GDP).
In a more positive development, separate data showed that inflation continued to slow. This month, it fell below 3% for the first time in more than two years. Eurozone consumer prices rose 2.9% year-on-year in October, but fell year-on-year. Eurostat said it was up from 4.3% in September.
“The main reason for the decline is that the strong rise in energy and food prices in October 2022 was not repeated this year,” said Christoph Weil, senior economist at Germany's Commerzbank.
Core inflation, which removes volatile food and energy prices, has eased. The rate rose to 4.2% from 4.5% in September.
stagnation of inflation The move will be welcomed by the European Central Bank, which has been raising interest rates for more than a year to keep prices in check. The ECB left interest rates unchanged last week, ending a run of 10 consecutive interest rate hikes, as inflation continues to fall sharply and the economy weakens.
The eurozone economy has struggled to regain momentum after being hit by a sharp rise in energy prices. In February 2022, Russia will invade Ukraine in earnest. Germany, the region's largest economy, felt the impact the most because of its huge manufacturing industry and dependence on Russian gas at the time.
In order to suppress the subsequent rise in interest rates, Rising inflation is putting further pressure on consumer and business spending.
Recent survey data shows that activity in the euro area's manufacturing and services sectors is on a downtrend, with demand for goods and services expected to weaken further.
Even if the region avoids recession, economists say a meaningful economic recovery is still a long way off.
“Momentum from now on” [the fourth quarter] “The situation remains extremely weak, weighed down by tight financial conditions,” said Rory Fennessy, an economist at Oxford Economics. “The euro area economy will enter a period of economic stagnation.”
Official GDP data from Germany and France, Europe's first and second largest economies respectively, support that view.
France's GDP grew by just 0.1% in the third quarter from the previous three months, faster than economists expected. Expand by 0.6%. Meanwhile, German production fell slightly in the third quarter.
Elsewhere, Spain's economy continued to grow, but at a slower pace than in the previous quarter, while Italy stagnated.
Ireland's volatile gross domestic product (GDP) fell by 1.8%, contributing to the contraction of the eurozone. Otherwise, the region might have avoided negative GDP.
“The economic environment is deteriorating at the moment, but there is no prospect of a sharp recession,” said Bart Collein, senior euro zone economist at Dutch bank ING. “Nevertheless, continued economic and geopolitical uncertainty, coupled with the impact of rising interest rates, will weigh on economic activity in the coming quarters.”
