why is it important
Stubbornly high inflation created a cost-of-living crisis for many consumers across the continent, causing them to significantly cut back on spending during this period. Spending in the euro zone fell by 0.3% in the first three months of the year, after falling 1% in the previous quarter. Imports also fell significantly as demand for goods and services contracted.
Public spending, which soared during the pandemic lockdown, also fell sharply, contracting 1.6% in the first quarter from a year earlier.
The economic downturn mirrors the recession in Germany, the euro zone's largest economy, which last month showed data for the first three months of the year pushed its economy into recession amid an energy price shock. It was reported that this was shown.
However, Thursday's report showed a mixed picture across the region, with southern European countries including Spain, Italy and Portugal all posting strong growth rates, while Germany and the Netherlands contracted and France grew only slowly. It has been shown.
Europe's economy as a whole has picked up pace slightly since the spring, with the European Commission raising its growth forecast, forecasting growth of 1.1% this year and 1.6% in 2024.
“Looking ahead, we see a slight recovery in consumer spending as inflation eases, and we also see a recovery in government spending,” Klaus Bystesen, chief euro area economist at Pantheon Macroeconomics, said in a note. “However, this boost is likely to be offset by continued declines in investment and further reductions in inventories, reflecting tighter credit standards.”
background
The government had hoped to avert a recession by spending lavishly over the winter to protect households and businesses from soaring energy and food prices, exacerbated by Russia's war in Ukraine. Countries across Europe quickly built up energy reserves, and a mild winter and massive conservation efforts helped avert the worst.
The strategy has helped bring down energy prices, and inflation in the euro zone's largest economy has fallen from record highs. Annual inflation in May was 6.1%, the euro zone's lowest level in more than a year.
However, prices for food and various services continue to rise at an uncomfortable pace, raising the possibility that the European Central Bank will continue to raise interest rates at future meetings. The International Monetary Fund has warned that European policymakers' main challenge this year will be to rein in inflation without triggering a deep recession.
what's next
Analysts say the economic downturn is moderate and unlikely to weigh on the economic recovery from the pandemic, but suggests that growth will nevertheless remain slow for the rest of the year. Stated.
“It is difficult to argue that this is a recessionary environment,” ING Bank said in a note to clients. “However, the economic downturn is clearly different from the recent post-pandemic boom.”
The European Central Bank's next monetary policy meeting will be held next Thursday.
