The latest growth figures for the Eurozone have been released as the European Central Bank considers what to do next.
Norphoto | Norphoto | Getty Images
The eurozone beat expectations on Tuesday by posting positive growth in the fourth quarter of 2022 and easing fears of a possible regional recession.
Preliminary Eurostat data released on Tuesday showed that the eurozone grew by 0.1% in the fourth quarter. Economists pointed to a contraction of 0.1% over the same period, according to Reuters.
The latest figures come after the eurozone reported a 0.3% increase in gross domestic product for the third quarter of last year.
The region has been under significant pressure in the aftermath of Russia’s invasion of Ukraine, as rising food and energy costs exacerbate long-standing supply chain bottlenecks. Last year, economists warned that the 20-country region could be on the verge of recession.
Energy prices eased in the latter part of 2022, bringing some relief to the broader economic performance of the Eurozone.
The euro area is expected to grow by 1.9% in the fourth quarter, compared to the same period in 2021, according to preliminary data.
“The advanced report of eurozone GDP shows that economic growth slowed again in the fourth quarter but did not straighten outright, defying the message from business surveys,” Melanie Debono, chief economist for Europe at Pantheon Macroeconomics, said in an email to clients. .
However, Germany surprised the downside at the diagonal breakdown level. Europe’s largest economy shrank by 0.2% in the fourth quarter of 2022, and analysts now expect Berlin to head into recession.
“It is possible that Germany entered a period of shallow and short recession in the fourth quarter that will last into the first quarter before the economy stabilizes in the second quarter (of this year),” Salomon Fiedler, an economist at Berenberg, said in a note on Monday.
Italy, the region’s third-largest economy, also posted negative growth – down 0.1% in the fourth quarter. Rome and Berlin have some of the strongest ties to Russian gas.
“Taking today’s data at face value means that the eurozone is likely to avoid a technical recession just this quarter. This will encourage the ECB to continue on its aggressive course of fighting inflation,” said Debono of Pantheon Macroeconomics.
The European Central Bank is scheduled to meet and decide on the next monetary policy steps on Thursday. Economists polled by Reuters and Facttest said the bank would agree to a 50 basis point increase in interest rates, bringing the main interest rate to 2.5 percent.
Market players will listen intently to ECB President Christine Lagarde for clues about the number of price increases that may occur over the coming months.
Some economists argue that the eurozone is still on the brink of recession later this year.
“Looking forward, we believe the eurozone (excluding Ireland) will fall into recession in the first half of this year as the effects of ECB policy tightening intensify, households struggle with the cost-of-living crisis and external demand remains sluggish,” said Andrew Kenningham, chief European economist. at Capital Economics, in an email on Tuesday.
“But this will not dissuade the ECB from its plans to raise interest rates further, including by 50 basis points on Thursday.” he added.