Tag: avoids

The eurozone has defied predictions that the Ukraine war would plunge it into recession after a warm winter blunted the impact of higher energy prices.

Data from Eurostat – the EU’s statistical agency – showed that growth in the 20 countries using the single currency stood at 0.1% in the first three months of 2023.

The small overall increase disguised a wide variation across member states. The eurozone’s biggest economy, Germany, stagnated in the first quarter of 2023 after contracting by 0.5% in the final three months of 2022.

Italy and Spain, the third and fourth-biggest eurozone economies, performed better than the markets had been expecting, each posting quarterly growth of 0.5%. France grew by 0.2%.

However, analysts said growth prospects were likely to remain weak because of the determination of the European Central Bank (ECB) to combat strong underlying inflationary pressures with higher interest rates.

Andrew Kenningham, the chief Europe economist at the consultancy Capital Economics, said: “The very small increase in GDP in the first quarter means a technical recession has been avoided by a whisker.

“However, the economy has essentially stalled as domestic demand has been hit hard by the energy shock followed by monetary tightening. We think activity will remain weak in the coming quarters.”

The small increase in growth in early 2023 followed a flat picture in the final three months of 2022 and reduced the year-on-year increase in output from 1.8% to 1.3%.

Even though the eurozone economy has been flatlining for the past six months, its success in staving off a severe downturn has surprised economists, who this time last year were predicting a severe recession.

Carsten Brzeski, the global head of macro at ING bank, said: “More resilient than expected is clearly one label to put on the eurozone’s economic performance. In fact, the eurozone economy has now been able to avoid what a few months ago was probably the best predicted recession ever.

“The warmer winter weather, lower wholesale energy prices, the reopening of China and fiscal stimulus are the key drivers behind this better-than-expected performance.”

Neil Birrell, the chief investment officer at Premier Miton Investors, said: “The eurozone economy has been resilient in the face of energy price increases and rate hikes over the past few months, and while growth is slowing, this remained the case in the first quarter.

“However, we are still likely to see the ECB press ahead with tighter policy measures when they meet on 4 May. There is nothing in this dataset to suggest that the economy is stalling or that inflation is beaten. In fact, the inflation data at country level suggests the opposite.”

The annual inflation rate in the eurozone came down sharply in March from 8.5% to 6.9% but the ECB is concerned about core inflation, which excludes food and energy. This rose from 5.6% to a new record high of 5.7% last month, prompting forecasts that the ECB will raise rates by 0.25 percentage points when it meets next week.