Eurozone has managed to avoid falling into a recession despite the contraction of Germany’s economy and the stagnation of France in the last quarter. According to data from Eurostat, the GDP across the eurozone and the wider European Union remained flat in the fourth quarter of 2023. This follows a 0.1% contraction in the third quarter, indicating that Europe narrowly escaped a technical recession, which is defined as two negative quarters in a row.
The growth reported in Italy (-0.2%), Spain (+0.6%), and Portugal (+0.8%) has contributed to keeping the eurozone away from another contraction.
Michael Field, European market strategist at Morningstar, suggests that it’s not all doom and gloom for the eurozone. He points out that growth among Europe’s peripheral countries has helped the eurozone avoid a recession, despite the struggles of its Big Two members. Field highlights that the euro area GDP was flat in the last quarter of 2023, which is better than the expected 0.1% fall. This means that the growth in the euro area economy was essentially steady for the entire year.
He also notes that the rebound in the peripheral economies of Belgium, Spain, and Portugal, which registered the highest level of growth at 0.8% in the fourth quarter, has helped mitigate the depressed growth in Europe’s powerhouse economies of Germany and France.
Despite the challenges, there are positive signs for the eurozone. Inflation is within touching distance of central banks’ targeted levels, meaning interest rates should decline over the course of this and next year. This brings much welcome relief to businesses and consumers’ pockets. However, the eurozone has fallen further behind the United States at the end of last year, as data showed that US GDP rose by an annualized rate of 3.3% in Q4, which is more impressive than the eurozone’s 0% growth.
The eurozone economy “escaped recession by the skin of its teeth” by the end of 2023, according to Diego Iscaro, head of Europe economics at S&P Global Market Intelligence. Iscaro also fears that the eurozone will struggle to grow in the first half of this year, after stagnating in the final quarter of 2023.
