- Forecast matching and better-than-expected results across the bloc
- Even Germany avoids technical recession as Q3 data is revised upwards
The Eurozone successfully avoided a recession in 2023 after Britain’s biggest trading partner reported flat GDP growth for the final quarter of the year.
European Central Bank figures show the bloc beat market forecasts of a 0.1 per cent decline for the quarter, as even lacklustre heavyweights France and Germany beat expectations.
But a preliminary reading of GDP growth of 0.5 per cent for both the euro area and the European Union as a whole stands in contrast to 3 per cent growth in the US, and puts pressure on the ECB to consider interest rate cuts to help bolster the economy.
Market pricing suggests the ECB will begin cutting rates in the second quarter of 2024, with four more cuts set to follow before the end of the year.
ECB chief Christine Lagarde last week warned talk of interest rate cuts was ‘premature’.
Significantly, Germany managed to avoid entering a technical recession despite a 0.3 per cent GDP decline for the fourth quarter, after its third quarter reading was revised up from a 0.1 per cent fall to flat growth.
Separate figures on Wednesday also show German consumer price inflation has eased more than expected in January, falling to 3.1 per cent from 3.8 per cent in December.
Similarly, French GDP stagnated in the fourth quarter, while a third-quarter decline of 0.1 per cent was revised upwards to flat GDP growth.
How Eurozone economies have performed since 2020
Data also showed on Wednesday that French inflation has fallen more than expected, coming in at 3.1 per cent for January against 3.7 per cent in December.
Meanwhile, Tuesday’s figures showed better-than-expected fourth quarter GDP growth of 0.2 and 0.6 per cent in Spain and Italy, respectively.
Charles Hepworth, investment director at GAM Investments, said: ‘There has been much wailing and gnashing of teeth that the fourth quarter would register a similar fall and result in the classic definition of a technical albeit shallow recession across Europe. However, the bloc managed to escape this by the skin of its teeth.’
But Hepworth warned the lacklustre growth figures ‘probably won’t embolden the doves at the ECB’, who are more likely to keep interest rates ‘higher for longer’ in the absence of a more severe downturn.
It echoes comments by ECB chief Christine Lagarde who last week warned talk of interest rate cuts was ‘premature’.
The ECB has left rates on hold at their record high of 4 per cent since September.
AXA Investment Managers economist Hugo Le Damany and senior Eurozone economist François Cabau said that fourth quarter GDP data ‘reinforced the view that rate cuts sooner rather than later are warranted’, with a cut at the ECB’s April meeting ‘definitely on the cards’.
They added: ‘[The data] makes it clear that (past) monetary tightening is the overwhelming downward force.
‘In the context of uninspiring business and consumer confidence, we maintain our below [2024 GDP growth] consensus [of 0.5 per cent] and ECB staff GDP forecast [of 0.8 per cent], foreseeing little sequential growth this year consistent with 2024 GDP growth at 0.3 per cent.’
Analysts at UBS said: ‘Looking ahead, the Eurozone growth outlook for the coming quarters remains challenging, with key headwinds from restrictive ECB monetary policy, a weak external environment and fiscal consolidation.
‘At the same time, labour market resilience and the recovery in real wage growth should support household consumption and hence broader GDP growth.
‘We forecast Eurozone GDP growth of 0.6 per cent in 2024 before rebounding to 1.2 per cent in 2025.’
The German economy is just 0.1 per cent bigger than in the final quarter of 2019
