Fears are confirmed: the euro zone did enter recession at the end of 2023. The review carried out this Friday by the European statistics office, Eurostat, reveals that the region’s economy contracted 0.1% in the fourth quarter of the year and entered a technical recession by chaining two negative periods. This figure corrects the first known estimates that indicated that the monetary area had stagnated between October and December, that is, that it had registered a growth in the Gross Domestic Product (GDP) of 0%. The one who managed to narrowly avoid the fall was the European Union, where the rate remained unchanged.
The downward revision in the euro zone is explained by the worse data from Latvia, whose economy increased by 0.3% in the fourth quarter, according to updated data, half a point less than previously estimated. Portugal also had an influence, as it grew one tenth less than the statistics office had anticipated (0.7% instead of 0.8%). Added to them are Lithuania and Finland, whose GDP contracted in both cases one tenth more than calculated by Eurostat a few months ago. Although there were other countries in which the revision was upward, the figures were not enough to alleviate the adverse effects of the rest. In any case, the GDP of the Netherlands (0.4%), Denmark (2.6%) and the Czech Republic (0.4%) was higher than expected.
The four large euro economies were unchanged: the German economy contracted by 0.3% in the last quarter of 2023, while in France and Italy it increased by 0.1% and 0.2%, respectively. Spain, for its part, managed to accelerate its growth to a robust 0.6% quarterly, compared to the 0.4% recorded between July and September. Its progress month after month has consolidated the country as one of the engines of growth in the bloc, which in contrast spent the year between stagnation and recession. In a general view, analysts agree that the growth of the Old Continent was slowed by the deterioration of household purchasing power, the strong monetary adjustment, the partial withdrawal of fiscal aid and the fall in external demand. The lower investment of companies has also been a compelling reason, while the confidence of Consumers and the prospects for the real estate market pulled down household demand.
Eurozone GDP began the year with zero growth in the first quarter, which increased to 0.1% in the second and went negative (-0.1%) in the third and fourth. The slowdown that has led to the technical recession seems to continue in the near future, according to the forecasts released by the main international organizations. The International Monetary Fund estimates that the GDP of the monetary area will grow 0.8% this year, less than a third of that of the United States. In this way, the Washington-based organization confirms that the war in Ukraine and the energy crisis have had a greater impact on the Old Continent. The European Commission’s projections, published in February, set the same rate for this year. Specifically, they expect a growth rebound of 0.2% in the first quarter, 0.3% in the second and 0.4% for the last two periods. Both organizations started from a scenario of stagnation and not recession.
The Commission sees a gradual revival of the economy in the second half of the year, driven by easing inflationary pressures, rising real wages and a strong labor market, which will stimulate consumer spending. Despite falling profit margins, analysts believe that investment will benefit from a gradual easing of credit conditions and the implementation of European funds. Added to this is a normalization of trade with foreign partners, “after a very poor performance last year.” The interest rate cut, scheduled for June, is also expected to help the European economy regain muscle. The next economic forecasts from Brussels will be the spring ones, scheduled for publication in May 2024.
Experts warn that these forecasts are subject to uncertainty, in a context of prolonged geopolitical tensions and the risk that the conflict in the Middle East will escalate and reach other parts of the world. Furthermore, further trade disruptions could lead to new supply bottlenecks that would harm production and drive up prices.