Europe’s economy avoided ending 2023 in a recession by the narrowest of margins, official data showed Tuesday.
Gross domestic product across the 20 countries that use the euro stagnated in the October-to-December quarter compared with the previous three months, according to an initial estimate published by Eurostat. In the July-to-September quarter, GDP dipped 0.1%.
The wider European Union economy, which includes 27 member states, also dodged a recession, typically defined as two consecutive quarters of economic contraction.
Over the whole of 2023, GDP rose 0.5% both in the eurozone and the EU, the data showed.
Europe’s economy has struggled to regain momentum following the pandemic, hamstrung by high inflation and rapid interest rate hikes to combat it. A surge in energy prices in 2022 — triggered by Russia’s full-scale invasion of Ukraine early that year — was particularly painful and natural gas prices remain high in Europe.
Europe’s biggest economy is languishing: Germany’s output shrank last year for the first time since the onset of the pandemic. In the fourth quarter, German GDP fell 0.3% compared with the previous quarter, the country’s statistics office confirmed Tuesday.
Better-than-expected growth in Italy and Spain in the last three months of 2023 — where output expanded by 0.2% and 0.6% respectively — appears to have helped keep Europe’s economy stable at the end of last year.
The French economy, Europe’s second-largest, stagnated in the fourth quarter but grew 0.7% over the whole of 2023.
‘No reason to celebrate’
Overall, Tuesday’s eurozone data is “no reason to celebrate,” according to Christoph Weil, a senior economist at Commerzbank.
“This does not really change the picture. The massive tightening of monetary policy brought economic growth to a standstill in the summer,” he wrote in a note. “It is unlikely that the economy will emerge from this weak phase before the spring.”
“Persistently high inflation” makes it unlikely the European Central Bank (ECB) will lower its key interest rates before the summer, he added, noting that the positive economic impact of those cuts would be unlikely to be felt before 2025.
Higher official borrowing costs push up the cost of capital, which tends to dampen borrowing by households and businesses, reining in overall spending in the economy.
Jack Allen-Reynolds, a eurozone economist at Capital Economics, takes a similarly gloomy view of Europe’s prospects.
“The region dodged a technical recession. This is just semantics though. The big picture is that eurozone GDP has been flat since Q3 2022 when gas prices surged and the ECB started raising interest rates,” he wrote in a note.
He expects the eurozone economy to “flatline” in the first half of 2024 “as the effects of past monetary tightening continue to feed through and fiscal policy becomes more restrictive.”
