Eurozone Q4 GDP comes in flat, avoids technical recession

(Sharecast News) - The eurozone and European Union managed to avoid a technical recession after official flash estimates showed the economy flatlined in the last three months of 2023.

The reading of zero GDP growth compares with a 0.1% contraction in the third quarter, EU statistics agency Eurostat said on Tuesday.

A technical recession is measured by two negative quarters in a row.

Germany, Europe's biggest economy, contracted in the final quarter of 2023 last year, official data revealed, meaning Europe's largest economy is close to recession.

German GDP shrank by 0.3% in the final three months of the year 2023, in line with forecasts, statistics agency Destatis said, following flat GDP in the second and third quarters of last year. The third-quarter was revised up from a 0.1% fall.

France posted zero growth for a second successive quarter, but Italy, which had been expected to stagnate, recorded growth of 0.2%, and Spain expanded by 0.6%, well above the 0.2% forecast.

Among the smaller eurozone economies, Portugal grew by 0.8% in the final quarter, Austria expanded by 0.2%, and Ireland contracted by 0.7% - its fourth successive quarterly fall in 2023.

"A technical recession has just been avoided in the eurozone. Still, the eurozone economy has now been broadly stagnating since late 2022 and has lost substantial ground to the US in terms of GDP in recent years. After the buoyant post-pandemic reopening phase, the economy has now entered a phase of prolonged weakness," said Bert Colijn, senior eurozone economist at ING.

"The divergence with the US is becoming bigger. In the eurozone, consumption is suffering much more from the high inflation spike because wage growth has been slow to adjust due to more negotiated wage-setting. That has resulted in a larger decline in real wages."

"Furthermore, while eurozone budget deficits are still sizable, fiscal support is much smaller than in the US."

"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."

"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."

Reporting by Frank Prenesti for Sharecast.com