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Eurozone Economy Shrinks by 0.1%, Putting It at Brink of Recession

The eurozone is teetering on the brink of a winter recession after the latest official figures showed its economy contracted by 0.1% in the third quarter of 2023.

In a worse than forecast performance, the 20-nation single currency zone has now failed to grow in three of the past four quarters, leaving its economy only 0.1% higher than it was a year earlier.

Business surveys have pointed to further weakness in the months ahead, despite a sharp fall in the eurozone’s annual inflation rate from 4.3% in September to 2.9% in October. A recession is defined as two successive quarters of falling activity as measured by gross domestic product.

Higher interest rates from the European Central Bank, the dampening impact of inflation on consumer spending power and the weakness of exports as a result of a slowing global economy have led to the flatlining of the eurozone in the past year.

The wider EU economy grew by 0.1% in the third quarter and was also 0.1% bigger than in the July to September period of 2022.

Of the zone’s four biggest economies, Germany contracted by 0.1%, France grew by 0.1% and Italy remained unchanged, while Spain grew by 0.3%. Ireland suffered the biggest contraction (-1.8%), while Latvia (+0.6%) and Belgium (0.5%) posted the strongest growth. Excluding the sharp quarterly contraction in Ireland, eurozone GDP was unchanged.

Bert Colijn, the senior eurozone economist at ING bank, said: “A drop in eurozone GDP keeps a small technical recession in the second half of 2023 a realistic prospect. With inflation falling faster than expected, the debate within the European Central Bank’s governing council is set to turn more dovish, but don’t expect rate cuts any time soon.”

The sharper-than-expected drop in the eurozone’s annual inflation rate was largely the result of movements in food and energy prices. Core inflation – which excludes food and energy – fell from 4.5% to 4.2%.

Jack Allen-Reynolds, the deputy chief eurozone economist at the consultancy Capital Economics, said: “The eurozone economy contracted in the third quarter and the continued weakness of the surveys at the start of the fourth quarter suggests that the outlook is poor.”

Analysts said the ECB – which has raised interest rates by a total of 4.5 percentage points since the summer of 2022 – was likely to keep borrowing costs on hold despite the latest drop in the eurozone inflation rate.

Source : The Guardian