Euro zone economy unexpectedly grows in Q4 but weak 2023 looms

  • GDP increases 0.1% in Q4
  • 2023 growth will be weak
  • Inflation, energy prices squeezing incomes
  • ECB rate hikes showing impact

FRANKFURT, Jan 31 (Reuters) – The eurozone posted growth in the final three months of 2022, managing to avoid a recession even as high energy costs, declining confidence and rising interest rates took a heavy toll on the economy. currency block. .

Gross domestic product in the eurozone rose a tiny 0.1% in the fourth quarter, data from Eurostat showed on Tuesday, meeting expectations in a Reuters poll for a 0.1% fall. Compared to a year earlier, growth was 1.9%, just beating expectations of 1.8%.

Among the largest countries in the eurozone, Germany and Italy recorded negative growth rates for the quarter but France and Spain increased, Eurostat added, based on a flash estimate that is subject to revision.

Also Read :  Exclusive: China in talks with Pfizer for generic COVID drug

Russia’s nearly year-old war in Ukraine has been costly for the eurozone, which now includes 350 million people in 20 countries, given that some members rely heavily on cheap energy.

Soaring oil and gas prices have drained savings and held back investment, forcing the European Central Bank to make unprecedented rate hikes to arrest inflation.

But the economy has shown some unexpected resilience, much like during the COVID-19 pandemic, when growth outperformed expectations as businesses adjusted to changing circumstances faster than expected. policy makers had predicted.

More recent figures such as a key confidence indicator or the latest PMI data suggest that growth may already have bottomed out and a slow recovery is underway, with generous government support and a mild winter with limited energy expenditure there.

Also Read :  Adani loses Asia's richest crown as stock rout deepens to $84 billion

However, the overall picture remains weak, with the growth forecast for 2023 modest due to a sharp decline in real incomes and rising interest rates.

“The headline GDP figure gives a misleadingly favorable view of economic conditions at the end of 2022,” said Ken Wattret, analyst at S&P Global Market Intelligence.

“What is most important from the member state data is the extent of the weakness in private consumption, and the sharp pressure on real household incomes due to rising inflation is increasing.”

The ECB has raised rates by a combined 2.5 percentage points to 2% since July to tame inflation, and markets see another 1.5 percentage point hikes by mid-year, which would put the deposit rate at its highest level since the start of the a hundred .

Also Read :  From Regime to Revolution: What Iran’s Uprising Could Entail for its Economy

Such rapid growth is crowding out bank loans, a key source of credit for businesses, and access to loans has already fallen by the most in the last quarter since the bloc’s 2011 debt crisis.

“In the coming months, the significant tightening of monetary policy will slow down the larger economy,” said Commerzbank economist Christoph Weil.

“We continue to expect the eurozone economy to contract somewhat in the first half of the year, and the expected recovery in the second half is likely to be weak.”

Reporting by Balazs Koranyi; Edited by Catherine Evans

Our Standards: The Thomson Reuters Trust Principles.


Leave a Reply

Your email address will not be published.

Related Articles

Back to top button