Despite surpassing expectations in 2022 Q4, some economists are projecting that the euro zone could transit into a recession later this year.
The euro zone economy report for 2022 Q4 came in better than expected, calming fears of possible regional recession. According to preliminary Eurostat data released on January 31st, the euro zone beat expectations of positive growth in Q4. The euro zone increased 0.1% in last year’s last quarter, exceeding economist expectations of a 0.1% contraction over the same period. This follows a 0.3% GDP rise in 2022 Q3.
Euro Zone in 2022 Q4
Before 2022 Q4, the euro zone has been feeling the weight of the Ukraine invasion by Russia. Due to the war, long-standing supply chain constraints persist with food and energy inflation. Amid The economic downturn which affected the entire euro area last year, economists warned of a potential recession. According to the economist, the 20-member region could enter an economic recession.
The reduced energy prices towards the end of 2022 Q4 sent some calmness to the storm affecting economic performance in the euro zone. According to the preliminary data, the euro zone is expected to grow 1.9% in Q4 compared to 2021 Q4. The senior European economist at Pantheon Macroeconomics wrote:
“The advance euro zone GDP report shows that economic growth slowed again in the fourth quarter but didn’t fall outright, defying the message from the business surveys.”
On the other hand, Germany recorded downturns as it contracted by 0.2% in the final quarter of 2022. Based on the recent figures, expectations are high that Berlin is moving into a recession. Berenberg economist Salomon Fiedler noted, “Germany has likely entered a shallow and short recession in the fourth quarter before the economy stabilizes in the second quarter [of 2023].”
Italy, which is the third-largest economy in the euro zone, experienced negative growth in 2022 Q4. Growth declined 0.1% during the period due to the disruption to the links Rome and Berlin had to Russian gas. Debono from Macroeconomics said:
“Taking today’s data at face value means the euro zone likely avoided entering a technical recession this quarter, just. This will embolden the ECB to continue on its steep tightening path to fight inflation.”
The central bank is expected to meet on Thursday and decide on the next monetary policy steps. An Economist poll shows that Reuters and Factset predict that the ECB will conclude on a 50 basis point rise in interest rates.
Despite surpassing expectations in 2022 Q4, some economists are projecting that the euro zone could transit into a recession later this year.
“Looking ahead, we think the euro-zone (excluding Ireland) will fall into recession in the first half of this year as the effects of the ECG’s policy tightening intensify, households struggle with the cost of living crisis and external demand remains sluggish,” stated the chief European economist at Capital Economics Andrew Kenningham.
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