Eurozone economy grows unexpectedly in Q4, but momentum weak in 2023

FRANKFURT – The eurozone has hit the economy with growth in the last three months of 2022, very high energy costs, falling confidence and rising interest rates likely to continue into this year. Nevertheless, we managed to avoid a recession.

Gross domestic product across currency blocks rose just 0.1% in the fourth quarter, Eurostat data showed on Tuesday, beating expectations in a Reuters poll for a 0.1% decline. Compared to a year ago, his growth rate was 1.9%, slightly above his 1.8% forecast.

Among the eurozone’s largest countries, Germany and Italy posted negative quarterly growth, while France and Spain expanded, Eurostat added.

Russia’s almost year-old war in Ukraine has been costly for the Eurozone, which now has 350 million people in 20 countries, given the heavy dependence of some member states on cheap energy. It has been proven to take.

Rising oil and gas prices have dried up savings and stifled investment, forcing the European Central Bank to raise interest rates unprecedentedly to keep inflation in check.

But the economy has also shown unexpected resilience. As during the COVID-19 pandemic, growth exceeded expectations as companies adapted to the changing environment faster than policymakers expected.

Recent figures, including key confidence indicators and the latest PMI data, suggest that growth may have already bottomed out, supported by generous government support and a mild winter with limited energy consumption, and a modest It suggests that recovery is underway.

Nonetheless, the picture remains weak, with 2023 growth projections bleak due to a significant decline in real incomes and a sharp rise in interest rates.

“The GDP headline gives a misleadingly positive impression of what the economy will look like in the second half of 2022,” said Ken Watlett, an analyst at S&P Global Market Intelligence.

“A key takeaway from member country data is the widespread weakness in private consumption, with a belated bite of severe pressures on household real incomes from a spike in inflation.”

Economists said Ireland’s 3.5% growth in the fourth quarter distorted the picture, adding that without Ireland the euro zone would have had zero growth.

The ECB has hiked interest rates by a combined 2.5% to 2% since July to curb inflation. The market will see another 1.5% rise by midyear, which will take deposit rates to their highest level since the turn of the century. .

Such a rapid increase has put the brakes on bank lending, an important source of credit for businesses, and access to loans has already suffered its biggest last-quarter decline since the bloc debt crisis in 2011. It is

“The tightening of monetary policy is likely to slow the economy in the coming months,” said Christoph Weil, an economist at Commerzbank.

“We continue to expect the eurozone economy to contract slightly in the first half, and the expected recovery in the second half is likely to weaken.”

Baraz Colany