Eurozone enters recession

The eurozone is entering its first recession since the pandemic, with the economy shrinking for a second straight quarter in the final months of the year.

A 0.1 per cent contraction now predicted for the fourth quarter of 2023, while the previous survey forecast that output would remain unchanged. A modest recovery is expected for early 2024, CTM File reports citing a Bloomberg poll of analysts.

“We doubt that we’re at the start of an upswing,” said Joerg Angele, an economist at Bantleon Bank. “Headwinds remain strong, especially the ones stemming from the massive increase of interest rates.”

The region’s weakness is largely due to Germany, Europe’s largest economy, which is struggling to shake off its manufacturing slowdown. Beset by a budget crisis and weak global demand, the country is expected to experience a 0.2 per cent downturn in Q4 of 2023 — double the 0.1 per cent decline initially projected.

The survey results are more pessimistic than the European Commission’s November forecast, which foresees the 20-nation euro area returning to growth this quarter, helped by a steep fall in inflation and a robust jobs market.

Recent Eurostat data attributed the region’s recent weakness to changes in inventories, showing household consumption remaining strong. But shrinking industrial production numbers provided a reminder of the region’s enduring weakness.

While a major headwind has come from tighter monetary policy, the recent slowdown in consumer-price growth has surprised markets and policymakers alike, prompting predictions that the European Central Bank (ECB) could bring forward its first interest rate cuts to next spring.

Economists lowered their projections for inflation through September 2024. But the quarterly forecasts were lifted higher beyond that, and don’t envisage price gains easing to the ECB’s two per cent target during the period covered in the poll.

The forecast comes after recent data showed Industrial production in Germany and Italy began the final quarter of the year in reverse after France and Spain reported similar outcomes, pointing to a possible recession in the region.

Output in Europe’s biggest economy fell 0.4 per cent in October from the previous month to the lowest level since August 2020, the German statistics office reported. In Italy, production declined 0.2 per cent from September.