Economic Watch: Europe's economic recovery momentum remains dented-Xinhua

Economic Watch: Europe's economic recovery momentum remains dented

Source: Xinhua

Editor: huaxia

2024-01-31 12:09:45

BRUSSELS, Jan. 30 (Xinhua) -- Both the EU and the eurozone narrowly avoided a technical recession in the last quarter of 2023 as Q4 GDP stagnated, the statistical office of the EU announced on Tuesday.

GDP readings were better than what market observers had expected but provided little relief as Europe's economic recovery momentum remains dented.


After shrinking by 0.1 percent in the third quarter of 2023, the GDP in the EU and the 20-member eurozone was flat in the last quarter, figures from the Eurostat showed.

The stable GDP figures in Q4 enabled the European economy to escape a technical recession, which is defined as two consecutive quarters of economic downturn.

Compared with 2022, the eurozone economy grew by 0.5 percent in 2023. The rate is markedly lower than estimations from market observers at the beginning of 2023.

On a quarter-to-quarter basis, eurozone GDP grew by 0.1 percent in the first two quarters before it declined by 0.1 percent in the third quarter.

Data released by the Eurostat also showed a widening divergence among economies in the eurozone. Growth in the last quarter was mainly supported by southern European countries such as Spain and Portugal, which posted growth rates of 0.6 percent and 0.8 percent respectively.

In contrast, the economy of Germany, the largest economy in the eurozone, contracted by 0.3 percent. For France, the GDP remained flat in the last quarter.


Multiple factors are believed to have led to a stagnant economy in the eurozone economy last year. While the most aggressive rate hike cycle by the European Central Bank (ECB) was launched to tame inflation, eurozone economies still have to cope with high energy costs and weak demand.

"After the buoyant post-pandemic reopening phase, the economy has now entered a phase of prolonged weakness," said Bert Colijn, a senior economist at ING, in a note.

Given that wage growth in the eurozone has been slow, price hikes in the area have eaten into the buying power of consumers and thus hurt consumption on the whole.

Meanwhile, energy costs have been hovering at levels so high that companies in the eurozone are forced to grapple with slimmer margins as a result of climbing production costs.

An increasing number of companies in Germany, especially those in the energy-intensive industries, have opted either to suspend part of their production or simply move to other countries with lower energy costs.

Interest rates, which have been lifted by the ECB to historically high levels, also militate against the economy by pushing up borrowing costs, dampening demand and investment.


The restrictive monetary policy adopted by the ECB would remain intact for some time, ECB president Christine Lagarde indicated at a press conference last week.

The threat of recession did not seem to bother the ECB chief, who argued that the economy should be gauged across a broader range of indicators such as employment and PMI.

The composite PMI in the eurozone in January ticked up to 47.9 points from 47.6 points in December.

In the ECB's view, the eurozone economy will continue to be weak in the near term but is expected to pick up momentum later this year.

Meanwhile, the ifo Institute, an economic think tank in Germany, has depicted a bleaker picture. It expects output of the eurozone's largest economy Germany to shrink in the first quarter of 2024, signaling a recession.

ING economist Colijn noted there are some signs of bottoming out, citing real wage growth and easing financial conditions. However, he insisted that there were no signs of any imminent recovery.

"We don't expect a material pickup in GDP growth in the first quarter though. In fact, we only expect a material improvement in the eurozone economy much later in the year," he said.