The eurozone economic system stagnated late final yr as a lingering power disaster sparked a lack of competitiveness in some European industries, and shoppers reined in spending to grapple with excessive residing prices, Europe’s statistics company reported Tuesday.
However economists consider the worst could also be over, because the European Central Financial institution continues its marketing campaign to wring out inflation with out plunging the eurozone economic system right into a deep downturn.
Financial output within the 20 nations that use the euro forex grew at zero p.c within the final three months of 2023 versus the earlier quarter, after contracting within the third quarter, narrowly avoiding a recession. In contrast with a yr in the past, the eurozone grew by simply 0.1 p.c.
The anemic tempo is protecting Europe far behind america, the place the economic system, though slowing from a breakneck development tempo, continues to be powered by shopper spending. Aggressive rate of interest will increase by the Federal Reserve have introduced a slowdown in inflation, and the Fed is anticipated to start unwinding these will increase quickly.
“The hole in financial exercise between the U.S. and eurozone is widening considerably in the meanwhile,” stated Bert Colijn, chief eurozone economist at ING Financial institution. “A part of that is structural because the eurozone faces a lack of competitiveness on the again of structural modifications within the financial atmosphere for the reason that warfare in Ukraine and power disaster.”
In Europe, companies have been compelled to lift wages within the final yr to assist staff and shoppers sustain with excessive prices. That has added to the challenges going through policymakers on the E.C.B., who, just like the Fed, had ratcheted up rates of interest to curb the rise in costs earlier than not too long ago pausing their marketing campaign.
Inflation in latest months has fallen quickly from the document highs of a yr in the past — although not but sufficient to completely negate the ache for households and producers. Even so, the eurozone economic system hasn’t fallen off a cliff, and there are indicators that the E.C.B.’s marketing campaign is beginning to pave the way in which for a modest restoration this yr, economists stated.
“Whereas development prospects for this yr are extra optimistic, output is ranging from a low base and the pickup will probably be gradual,” stated Rory Fennessy, Europe economist at Oxford Economics in London. Even so, he added, “we anticipate fading headwinds in Europe to assist a restoration in development all through 2024,.
Europe’s greatest drawback proper now could be Germany. Lengthy the powerhouse of Europe, its manufacturing-intensive economic system has slumped amid industrial rivalries with China and the scourge of excessive power prices. The German economic system shrank 0.3 p.c within the fourth quarter, after flatlining within the earlier two quarters.
Germany’s economic system stays caught in “the twilight zone between recession and stagnation,” stated Carsten Brzeski, the top of worldwide head of macroeconomics at ING.
France, the bloc’s second greatest economic system, did not develop within the fourth quarter amid a fall in consumption and slowdown in funding.
Development, nonetheless, has been extra sturdy in main nations alongside Europe’s southern rim, together with Spain and Portugal, revealing a European economic system that seems more and more to be working at two speeds. The Spanish economic system grew by 0.6 p.c from October to December, pushed by a tourism increase, whereas Portugal’s expanded by 0.8 p.c.
