Eurozone narrowly avoids recession but gloomy outlook remains

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France and Germany remain in the doldrums despite Spain and Italy exceeding economic expectations.

ANNOUNCEMENT

The euro zone economy remained flat in the final three months of 2023, according to gross domestic product (GDP) data released on Tuesday.

This stagnant figure is up 0.1% from the same period last year and represents a quarterly decline of 0.1%.

The new GDP data looks at the production of goods and services in countries that use the euro, meaning it can be used to measure the economic health of the bloc.

Overall, the picture is not rosy, although it slightly exceeds analysts’ forecasts of a 0.1% decline for the fourth quarter.

Despite small successes in Spain and Italy, the eurozone’s largest economies, Germany and France, have lagged behind.

High interest rates, low foreign demand and geopolitical tensions are some of the key factors hindering Eurozone growth, which will bring the European Central Bank (ECB) under greater pressure to reduce financing costs.

Germany, the ‘sick man’

Europe’s largest economy contracted by 0.3% in the final quarter of 2023, after two consecutive quarters of flat growth, bringing the annual contraction figure to 0.3%.

The decline is driven by weak foreign demand for German goods, combined with low domestic consumer spending.

“In 2023, Germany was the ‘sick man’ in the truest sense of the word: Its economic performance was significantly more affected by the wave of diseases than other countries,” economists Claus Michelsen and Simon Junker said in a report published last week. .

“What is still true is that the German economy faces significant structural problems and faces major challenges in international competition,” they added.

As is the case in other eurozone countries, high borrowing costs are putting pressure on German finances, but the country is also grappling with a high number of absences from work due to poor health and a series of rail strikes .

Furthermore, Germany was too hit particularly hard by the surge in energy prices caused by the Russian invasion of Ukraine.

This is partly due to the nation’s heavy dependence on Russian power, as well as the German economy’s dependence on heavy industry.

France in stagnation

As from July to September, French GDP remained unchanged in the last three months of 2023.

Full-year growth was a disappointing 0.9%, down from 6.4% in 2021 and the 2.5% rate seen in 2022.

Inflationary pressures are clearly being felt, but there is some reason to celebrate in silence.

“We can see the glass as half empty or the glass as half full,” said Jean-Luc Tavernier, director general of INSEE, France’s national statistics agency.

Speaking to France International on Tuesday, he commented: “after a fairly significant slowdown in 2023, we will overcome this situation without a recession.”

ANNOUNCEMENT

In the last quarter of the year, French household consumption of goods decreased by -0.1%, while household consumption of services increased by 0.3%.

Consumer confidence is showing signs of improvement despite being below its long-term average.

Small victories in some parts of Europe

Looking for glimmers of hope amid the negative data, analysts point to Italy and Spain.

In the fourth quarter, Italian GDP grew by 0.2% despite weak domestic demand, a result that exceeded expectations of 0%.

This figure is up 0.5% compared to the same period last year, thanks to the boost provided by the industrial and service sectors.

ANNOUNCEMENT

Spain’s economy also beat expectations for quarterly growth by 0.2%, with GDP rising 0.6% in the fourth quarter.

This is mainly due to increased household consumption, although economists remain concerned about a surprise rise in inflation, which rose to 3.5% in January from a year earlier.

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