According to data released by Eurostat on Thursday, the euro zone has entered a recession this winter, hurt by a fall in consumption due to price increases and the difficulties faced by German industry.
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The GDP of the 20 countries sharing the currency fell by 0.1% between January and March after falling by the same magnitude from October to December. The figures have been revised significantly downwards compared to previous estimates.
The European Statistical Institute has so far reported growth of 0.1% in the first quarter after stagnating (0%) at the end of last year.
The downward revision is largely explained by the recent fall in numbers from Germany. The first European economy announced at the end of May that it had entered a recession due to a drop in the activity of its industrial companies.
The new numbers cloud the zone’s full-year outlook. In mid-May, the European Commission forecast growth of 1.1% in 2023.
The figure now seems “optimistic,” Charlotte de Montpellier, economist at ING bank, told AFP. Only 0.5% is provided throughout the year.
“All the data has been bad since spring,” she said, referring in particular to German industrial production and incoming orders. In her opinion, “the European economy is in a phase of stagnation and is having difficulty surviving the winter due to the energy shock”.
Although gas and oil prices have fallen in recent months, the rise in prices over the past year has had a significant impact on household confidence. Despite declining, inflation remains high at 6.1% in May and price increases are now affecting food, manufactured goods and services.
Household final consumption expenditure fell 0.3% in the first quarter after falling 1% in the previous three months, Eurostat said on Thursday.
The European economy has also been affected by the European Central Bank’s (ECB) interest rate hike, which is reducing demand for credit and curbing investment, particularly in real estate, leading to a drop in construction activity.
The slowdown observed in the USA and the weaker than expected recovery in China are also weighing on exports.
“We believe the economy will contract again for the remainder of the year,” commented Andrew Kenningham, a capital economics expert, who pointed to “the impact of monetary tightening” by the ECB being forced to fight “inflation”. .
“Unfortunately, there are not so many elements that give hope for a recovery in the coming months,” believes Charlotte from Montpellier.
German and European industry has been “destabilized” by a series of shocks: problems with supply chains, an energy surge, a global slowdown.
But its difficulties are also structural. It suffers from losing access to Russian gas as supplies have been cut off related to the war in Ukraine. In addition, the country suffers from the dependency on Chinese suppliers when renewable energies are booming. In the automotive sector, Chinese manufacturers are taking advantage of electrification to overtake their German competitors.
Germany recorded a 0.5% decline in GDP in the last quarter of 2022, then 0.3% from January to March.
It is “with activity currently below pre-pandemic levels in 2019, while the other countries (in the eurozone) are doing much better.” “The old star of the European economy is no longer shining,” Ms Montpellier.
Conversely, Spain and Italy grew 0.5% and 0.6% respectively in the first quarter, with the less industrialized southern European countries taking full advantage of the surge in tourism following the end of restrictions that paralyzed the sector during the health crisis.
France, on the other hand, recorded moderate growth (0.2%) in the first quarter.