Eurozone economy on brink of recession

Release time：2024-05-21 18:38:26 Source：International Insights news portal

A symphony of light consisting of bars, lines and circles in blue and yellow, the colors of the European Union, illuminates the south facade of the European Central Bank (ECB) headquarters in Frankfurt, Germany, Dec 30, 2021. [Photo/Agencies]

A lack of economic growth in three out of the last four quarters has left the eurozone heading into winter on the brink of a recession.

Newly released figures showed a worse-than-expected performance for the third quarter of the year, where the economy shrank by 0.1 percent, despite the rate of inflation having fallen by a larger than anticipated amount, from 4.3 percent in September to 2.9 percent in October.

"A drop in eurozone GDP keeps a small technical recession in the second half of 2023 a realistic prospect," Bert Colijn, senior eurozone economist at ING bank, said. "With inflation falling faster than expected, the debate within the European Central Bank's governing council is set to turn more dovish, but don't expect rate cuts any time soon."

Germany, the economic heart of the continent which so often sets the tone for the fortunes of its neighbors, saw a 0.1 percent economic contraction, while Italy's remained unchanged. France grew by just 0.1 percent and Spain recorded 0.3 percent growth.

Latvia and Belgium saw the biggest growth in the bloc, although moderate figures, while Ireland suffered the sharpest contraction, with a reduction of 1.8 percent.

"The big picture is that the eurozone is struggling," Jack Allen-Reynolds, deputy chief eurozone economist at Capital Economics, wrote in a note quoted by CNN. "It has only grown by 0.1 percent over the past year, and the timeliest business surveys consistently point to activity declining at the start of (the fourth quarter)."

In September, the European Central Bank, or ECB, put up interest rates for a 10th consecutive time, with the deposit rate reaching 4 percent, the highest rate since the launch of the euro in 1999.

This was a move designed to bring down inflation, with ECB President Christine Lagarde saying at the time that the bank's governing council "considers that the key ECB interest rates have reached levels that, maintained for a sufficiently long duration, will make a substantial contribution to the timely return of inflation to the target".

The latest larger-than-expected fall in inflation is an encouraging sign, but the run of successive interest rate rises has had a damaging impact on growth.

Salomon Fiedler, an economist at Berenberg Bank, told The Daily Telegraph newspaper that the latest fall suggested the ECB was "almost certainly done with its rate hike cycle", but Tomas Dvorak, a senior economist at Oxford Economics, said the full impact on the growth of higher interest rates had not yet been felt.

"The eurozone is in for a period of economic stagnation, with growth unlikely to return until real income growth turns sufficiently positive and the peak impact of monetary tightening has passed," he warned.

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