Jakarta, CNBC Indonesia – Bad news coming from Europe. The European Union (EU) statistical office, Eurostat, said the Eurozone had officially entered a technical recession in the first quarter of 2023 after the economy contracted 0.1% for two consecutive quarters.
These conditions seemed to make Europe’s nightmare even more real. This is because the country with the largest economic power in the region, Germany, has previously been confirmed to be on the brink of recession.
Eurostat on Thursday (8/6/2023) cut its previous estimates from 0% growth in the last quarter of 2022 and 0.1% growth in the first quarter of 2023 to a contraction of 0.1% in both periods.
Two consecutive quarters of shrinking gross domestic product (GDP) have put Europe on the verge of a technical recession.
Meanwhile, this condition illustrates the difficulty of the region to recover from the blow of inflation marked by soaring energy and food prices that were triggered by Russia’s war in Ukraine.
Practically, the European Central Bank (ECB) has been forced to respond by raising its main interest rate by 3.75 percentage points since starting its unprecedented monetary tightening campaign in July last year.
The latest figures cast doubt on the more optimistic predictions for 2023 as a whole.
The European Commission forecast in mid-May that growth this year would only reach 1.1% in the 20 countries that are in the Eurozone.
Meanwhile, on an annual basis the euro zone economy in the first quarter of 2023 grew 1%, slowing from the previous quarter’s 1.8% and below expectations of 1.2%.
stagnation in Europe
Charlotte de Montpellier, economist at ING Bank, predicts the 2023 growth figure will only be 0.5%.
“Since spring, all the data is bad,” he told AFP, pointing specifically to German industrial production. “The European economy is in a stagnation phase and is having a hard time getting through the winter due to the energy shock.”
Although gas and oil prices have fallen in recent months, last year’s surge in prices had a major impact on household confidence and forced consumption to decline.
Capital Economics said in a note that it thinks GDP will likely contract again in the second quarter of 2023 as the effects of monetary policy tightening continue.
“Domestic demand has been hit hard by the combination of inflation and interest rate hikes,” he said.
Headline inflation for the 20 EU countries that use the euro fell to 6.1% in May. However, the inflation remains well above the 2% target set by the ECB.
ECB head Christine Lagarde said inflation remains too high for Europe, hinting that smaller interest rate hikes may be on the way. News of a technical recession could also put pressure on the central bank to hold off on further regulatory tightening.
(luc/luc)
2023-06-08 13:58:00
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