Europe avoids recession for now despite GDP stagnation in last quarter of 2023


  • Forecast matching and better-than-expected results across the block
  • Even Germany avoids technical recession thanks to upward revision of third quarter data

The eurozone managed to avoid a recession in 2023 after Britain’s biggest trading partner reported stable GDP growth for the final quarter of the year.

European Central Bank figures show the bloc beat market forecasts of a 0.1 percent decline for the quarter, while even lackluster heavyweights France and Germany beat expectations .

But a preliminary figure of 0.5 percent GDP growth for the euro zone and the European Union as a whole contrasts with 3 percent growth in the United States and puts pressure on the ECB to it is considering interest rate cuts to help support growth. economy.

Market prices suggest that the ECB will start cutting rates in the second quarter of 2024, with four more cuts expected to follow before the end of the year.

ECB chief Christine Lagarde warned last week that it was “premature” to talk about cutting interest rates.

ECB chief Christine Lagarde warned last week that it was “premature” to talk about cutting interest rates.

Importantly, Germany managed to avoid entering a technical recession despite a 0.3 percent drop in GDP in the fourth quarter, after its third quarter figures were revised upwards from from a decline of 0.1 percent to stable growth.

Separate figures released on Wednesday also showed that consumer price inflation in Germany slowed more than expected in January, falling to 3.1 percent from 3.8 percent in December.

Similarly, French GDP stagnated in the fourth quarter, while a 0.1 percent decline in the third quarter was revised upwards for stable GDP growth.

How Eurozone economies have performed since 2020

How Eurozone economies have performed since 2020

Data also showed on Wednesday that French inflation fell more than expected, coming in at 3.1 percent in January from 3.7 percent in December.

Separately, figures released Tuesday showed better-than-expected fourth-quarter GDP growth of 0.2 and 0.6 percent in Spain and Italy, respectively.

Charles Hepworth, investment director at GAM Investments, said: “There has been much wailing and gnashing of teeth that the fourth quarter would see a similar decline and result in the classic definition of a technical albeit superficial recession. through Europe. But the bloc narrowly managed to escape.”

But Hepworth warned that the lackluster growth figures “are unlikely to embolden ECB doves”, who are more likely to keep interest rates “higher for longer” in the absence of a more slowdown. severe.

He echoes the comments of ECB chief Christine Lagarde warned last week that talk of interest rate cuts was “premature”..

The ECB left rates unchanged at their record level of 4 percent since September.

Hugo Le Damany, economist at AXA Investment Managers, and François Cabau, senior eurozone economist, said the fourth-quarter GDP data “reinforced the view that rate cuts are warranted sooner rather than later.” , with a drop at the April ECB meeting “definitely possible”.

They added: “(The data) clearly shows that (past) monetary tightening is the overwhelming downward force.

“Against a backdrop of lackluster business and consumer confidence, we maintain our lower consensus (of 0.5 percent GDP growth in 2024) and our ECB services GDP forecast (of 0.8 percent ), forecasting weak sequential growth this year, consistent with GDP growth in 2024. at 0.3 percent.

UBS analysts said: “Looking ahead, the Eurozone growth outlook for the coming quarters remains challenging, with the main headwinds linked to the ECB’s restrictive monetary policy, a weak external environment and budgetary consolidation.

“At the same time, the resilience of the labor market and the resumption of real wage growth should support household consumption and therefore broader GDP growth.

“We forecast eurozone GDP growth of 0.6 percent in 2024 before rebounding to 1.2 percent in 2025.”

The German economy grew by only 0.1 percent compared to the last quarter of 2019.

The German economy grew by only 0.1 percent compared to the last quarter of 2019.


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