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International Business Times
International Business Times
Business
Raziye Akkoc

Eurozone Narrowly Dodges Recession

Markets hope the European Central Bank will soon start cutting interest rates (Credit: AFP)

The eurozone economy narrowly avoided a technical recession in the second half of 2023 but stagnated in the final three months of the year, official data showed Tuesday.

The singe-currency area's economy has been hit by many factors including higher interest rates, a cost-of-living crisis hitting households spending and weakening global demand.

The zero-percent quarter-on-quarter figure for the October-to-December period beat forecasts.

Analysts for Bloomberg and financial data firm FactSet had predicted a contraction of 0.1 percent in the fourth quarter.

There were fears that, if the predictions had been correct, that would have meant two consecutive quarters of contraction -- the threshold for a technical recession.

The EU's Eurostat data agency also recorded no growth in 27-country bloc -- including members that do not use the euro -- over the October-December period after a contraction of 0.1 percent in the third quarter.

Economists predict the economic stagnation will continue.

"We think that it will flatline in the first half of this year too as the effects of past monetary tightening continue to feed through and fiscal policy becomes more restrictive," said Jack Allen-Reynolds of Capital Economics, an economic research firm.

He added that the eurozone dodging a technical recession was "just semantics".

"The big picture is that eurozone GDP has been flat since Q3 2022 when gas prices surged and the ECB (European Central Bank) started raising interest rates," he said.

Energy prices soared after Moscow's invasion of Ukraine and Europe's subsequent shift to different energy sources after relying on Russia for many years.

The data also showed the EU and the eurozone economies grew by 0.5 percent in the whole of 2023, compared to the previous year.

That figure is slightly lower than the European Commission's forecast in November of 0.6 percent growth in 2023.

The commission at the time predicted the eurozone economy would grow by 1.2 percent this year. But officials this month suggested it could be lower.

The EU's economy commissioner, Paolo Gentiloni, said there were downside risks to economic growth because of "geopolitical tensions", especially in the Middle East.

The commission will present its latest forecasts next month.

The eurozone economy was weighed down last year by the performance of the continent's powerhouse Germany.

The German economy shrank 0.3 percent in the final quarter of 2023, Eurostat said.

Germany has been hit hard by multiple factors including meek consumption, falling orders for exports and confusion over the government budget.

German Finance Minister Christian Lindner dismissed accusations that his country was the "sick man" of Europe during an event at the World Economic Forum earlier this month.

"Germany is a tired man after a short night and the low-growth expectations are partly a wake-up call," he said.

France, the EU's second biggest economy, recorded zero growth in the final two quarters of 2023 while Italy, the third largest, expanded by just 0.2 percent in the fourth quarter.

Ireland's economy recorded the biggest contraction for the period, shrinking 0.7 percent.

There are hopes the European Central Bank will start cutting interest rates before the northern hemisphere's summer, although ECB chief Christine Lagarde said last week it was too early to discuss such action.

On Thursday, Eurostat will publish inflation data for January, after the annual rate reached 2.9 percent in December. That is still above the ECB's two-percent target.

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