Euro Area: Economy stagnates, dodges recession thanks to Southern countries

Euro Area GDP Q4 2023

Euro Area: Economy stagnates, dodges recession thanks to Southern countries

The economy remained unchanged in seasonally adjusted quarter-on-quarter terms in Q4. This followed Q1’s 0.1% dip and beat market expectations of another 0.1% drop. Compared with Q3 2022, seasonally adjusted GDP increased by 0.1% year on year in Q4, following a flat reading in the previous quarter.

The quarterly stagnation reflected diverging performances between the Eurozone’s largest economies. Germany’s GDP fell 0.3% over the previous quarter in Q4, while the French economy was flat. In contrast, Italy’s economy expanded 0.2%, while Spanish GDP grew 0.6%.

Momentum should remain subdued in the first quarter of this year, restrained by depleted savings and still-tight financing conditions. In 2024 as a whole, GDP is likely to expand at no more than a paltry pace. The industrial sector should rebound thanks to improved external demand. The disbursement of EU funds should support activity, however. Higher-than-expected debt-servicing costs for highly indebted Mediterranean governments due to increased financial and geopolitical instability pose a downside risk to the outlook.

Commenting on the outlook, Bert Colijn, senior Eurozone economist at ING, stated:

“For the months ahead, there are some green shoots for the Eurozone economy. Survey indicators show signs of bottoming out, and real wage growth is slowly starting to recover; the latter should put more money in consumers’ pockets. Over the course of the year, that effect should become bigger. And financial conditions are easing, which is resulting in some bottoming out of lending indicators. That helps investment later in the year. We don’t expect a material pickup in GDP growth in the first quarter though. In fact, we only expect a material improvement in the Eurozone economy much later in the year.”

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