Euro Area: Eurozone enters technical recession
The economy dipped 0.1% from the previous quarter in seasonally adjusted quarter-on-quarter terms in Q1, matching Q4’s 0.1% drop and coming in below the preliminary reading of a 0.1% increase. Compared with Q1 2022, seasonally adjusted annual GDP increased 1.0% in Q1, following the 1.8% rise recorded in the previous quarter. The quarterly deceleration came on the back of elevated inflation, weak industrial activity and a worsening global economic outlook.
On the domestic front, household spending contracted 0.3% in Q1, following the 1.0% decline recorded in Q4, as households suffered from the effects of high inflation and depleted savings. Meanwhile, fixed investment expanded 0.6% in Q1, swinging from Q4’s 3.5% decrease, likely sustained by the disbursement of Next Generation EU funds. Lastly, public spending fell 1.6% (Q4: +0.8%), while destocking subtracted 0.4 percentage points from growth.
On the external front, exports of goods and services dipped 0.1% in the first quarter, which was above the fourth quarter’s 0.3% decrease. Meanwhile, imports of goods and services dropped 1.3% in Q1 (Q4: -2.5%). Overall, the external sector contributed 0.7 percentage points to the quarter-on-quarter reading.
Commenting on the release, Bert Colijn, senior economist at ING, stated:
“The significant downward revision was mainly due to Germany revising down its numbers as new data came in. […] Overall, the eurozone economy is very much back to muddling through, as monetary policy starts to weigh more heavily on activity, post-pandemic spending fades and the energy crisis looms.”