The euro zone confounded previous forecasts and contracted for two consecutive quartersdata showed Thursday, as energy shocks, the war in Ukraine, inflation and monetary policy tightening cut into growth momentum over the winter, Politico reported.
The data showed the 20-nation currency zone had failed to avoid recession – albeit a very shallow one for now, making policymakers’ sense of optimism about the eurozone’s economic resilience to such challenges seem premature.
Eurozone GDP contracted by 0.1% in the first three months of 2023., according to revised data from Eurostat, the EU’s statistical office. The news worsened from a revision to the final quarter of 2022 — to a contraction of 0.1 percent, after a previous forecast of 0 percent. A recession is defined as two consecutive quarters of GDP contraction.
The figures complicate the reckoning of governments grappling with a cost-of-living crisis in Europe triggered by Russia’s invasion and resulting skyrocketing energy prices, as well as intense pressure on the European Central Bank, which has committed to unprecedented interest rate hikes to try to control record inflation.
The data is worse than previous signals. Flash forecasts released in April suggested growth of 0.1 percent in the euro zone for the first quarter of the year. The downward correction follows data from Germany, the eurozone’s largest economy, showing that it also shrank for a second consecutive quarter and slipped into recession.
A total of eight EU countries reported a decline in GDP during the first three months of the year, as in Ireland it is the largest – 4.6 percent, due to a decline in exports by multinational companies. Lithuania, the Netherlands, Estonia, Malta, Hungary and Greece reported a decline in GDP.
On a positive note, employment in the euro area continued to increase by 0.6% in the first quarter of this year, up from 0.3% in the previous quarter.
The ECB’s Governing Council is due to meet to set interest rates on June 15.
The bank wants to keep raising interest rates to “sufficiently restrictive levels” to bring inflation back to its 2 percent target over the medium term, ECB President Christine Lagarde told members of the European Parliament on Monday.
The ECB estimates that monetary tightening is expected to shrink GDP by an average of 2 percentage points over the period 2022-2025, with the peak expected this year.
The ECB does not exercise sufficient supervision over banks’ credit risk
This is indicated by a report of the European Court of Auditors
2023-06-08 12:02:42
#Eurozone #fell #recession
