EU economy showed unexpected growth in 4Q
2023.01.31 11:47
EU economy showed unexpected growth in 4Q
By Kristina Sobol
Budrigannews.com – Even though sky-high energy costs, waning confidence, and rising interest rates took a toll on the economy that is likely to last into this year, the euro zone managed to avoid a recession in the final three months of 2022.
According to Eurostat data released on Tuesday, the currency bloc’s gross domestic product increased by a meager 0.1 percent in the fourth quarter, exceeding expectations a decrease of 0.1 percent. Growth was just 1.9 percent higher than anticipated, beating expectations of 1.8 percent.
Based on a flash estimate that is subject to revisions, Eurostat added that Germany and Italy, two of the largest countries in the euro zone, experienced negative growth rates for the quarter, while France and Spain expanded.
Given that some members heavily rely on cheap energy, Russia’s nearly year-long war in Ukraine has been costly for the euro zone, which now includes 350 million people in 20 countries.
The European Central Bank was forced to take unprecedented rate hikes to stop inflation as a result of rising oil and gas prices, which have reduced savings and slowed investment.
However, the economy has also shown some unexpected resilience, much like it did during the COVID-19 pandemic, when businesses adjusted to new conditions faster than policymakers had anticipated.
Recent data, such as the most recent PMI or a crucial confidence indicator, suggest that growth may have already reached its lowest point and that a sluggish recovery is beginning, aided by generous government support and a mild winter that has limited energy spending.
Despite this, the overall picture remains bleak, with modest growth anticipated for 2023 due to a significant decline in real incomes and rising interest rates.
Analyst Ken Wattret of S&P Global (NYSE:) stated, “The headline GDP figure gives a misleadingly favourable impression of economic conditions in late 2022.” Market information.
“The primary takeaway from the data from member states is the breadth of weakness in private consumption, with the acute squeeze on household real incomes caused by rising inflation biting belatedly,”
Economists stated that the overall picture was distorted by Ireland’s 3.5 percent Q4 growth because it was primarily driven by activity among large foreign companies based there for tax reasons. They also stated that without Ireland, growth in the euro zone would have been zero.
To control inflation, the European Central Bank (ECB) has increased interest rates by 2.5 percentage points to 2% since July. By the middle of the year, markets anticipate another 1.5 percentage points of increases, putting the deposit rate at its highest level since the turn of the century.
Bank lending, a crucial source of business credit, is being stifled by such a rapid increase, and access to loans has already experienced the largest decline since the bloc’s 2011 debt crisis.
Commerzbank (ETR:) claims that “in the coming months, the noticeable tightening of monetary policy will increasingly slow down the economy.” Christoph Weil, an economist, stated.
“We continue to expect the economy of the euro area to contract a little in the first half of the year, and the recovery that is expected in the second half is likely to be weak,” the statement reads.
