The Eurozone has seen a winter recession, and challenges lie ahead

BRUSSELS, June 8 (Reuters) – The euro zone economy fell into technical recession in the first three months of 2023, data from statistics agency Eurostat showed on Thursday, as central bank rate hikes could dampen the region’s future growth prospects.

Gross domestic product (GDP) for the 20-nation euro zone fell 0.1% in the first quarter compared to the final quarter of 2022, while GDP also fell 0.1%, revised from zero earlier. Two quarters of contraction are commonly described as technical recessions.

“Domestic demand is not in a good place,” the Oxford economists said in a note, adding that public spending saw the biggest contraction in the first quarter of 2020 apart from the first wave of coronavirus lockdowns.

“Going forward, growth will remain subdued despite lower aggregate energy prices as monetary policy dampens investment and existing inflationary pressures restrain consumption,” they said.

Separately, economists polled by Reuters expect quarterly growth to moderate at 0.2% in each of the remaining three quarters of the year and expect the European Central Bank to hike another 25 basis points at both its June and July meetings. An attempt to counter stubborn inflation.

That would take the ECB’s deposit rate to 3.75%, an unprecedented 425 basis points since the bank raised rates from negative territory last July.

Eurostat said euro zone GDP was 1.0% higher in the first quarter than a flash estimate of 1.3% growth published on May 16. Economists had forecast a 1.2% annual expansion and zero growth for the quarter. .

The revision was mainly due to a second estimate by Germany’s statistics office that showed the euro zone’s largest economy was in recession as early as 2023.

Contraction in Ireland’s economy widened to 4.6% from an initial estimate of 2.7%, although this negative was due to the impact of large multinationals on growth there.

A recession was expected late last year as the euro zone wrestled with higher energy and food prices and a post-pandemic spending boom faded. Initial estimates suggested the region had avoided it.

Along with Germany and Ireland, GDP also fell in the quarter in Greece, Lithuania, Malta and the Netherlands.

Eurostat reported that household spending was reduced by 0.1 percentage point, public spending by 0.3 points and inventory changes by 0.4 points from quarterly GDP. Gross fixed capital formation added 0.1 point and net trade added 0.7 points as imports fell.

Conversely, employment growth accelerated in early 2023, rising to 0.6% in the first quarter from 0.3% in the fourth quarter of 2022, according to previous estimates. This is an increase of 1.6% per annum.

On a quarterly basis, employment grew in all countries except Greece, Lithuania and Slovakia.

For more details on Eurostat data click:

http://ec.europa.eu/eurostat/news/news-releases

Report by Philip Blenkinsop; Editing by Mark John, Sharon Singleton and Susan Fenton

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