Eurozone on the brink as ‘stagnant’ EU narrowly avoids full-blown recession | City & Business | Finance
Eurozone economies have been told to brace for a difficult year with an economist suggesting the European Union only just avoided dipping into a full-blown recession.
However, while Hafsa Haniffa, of London-based think tank the Centre for Economics and Business Research (CEBR) 2023 had been characterised by “stagnation”, an eagerly anticipated cut in interest rates would nevertheless enable growth to recover in 2024.
The Eurozone refers to the 20 EU member states which have adopted the euro as their currency.
Mr Haniffa was reacting to new data released by Eurostat, the European Union’s statistics division, indicating the final quarter of the year saw a growth figure of 0.0 percent.
The figures mean the bloc narrowly avoided a technical recession (two consecutive quarters of negative growth), as it recorded a contraction of 0.1 percent in Q3.
Today’s reading was marginally more positive than anticipated, with most analysts expecting the EU’s economy to shrink by 0.1 percent once more.
Mr Haniffa said: “Today’s Eurostat figures reveal that the eurozone economy recorded broadly no growth in Q4, just avoiding a technical recession.
“Despite the data surprising to the upside, it doesn’t change the picture for 2023 as a whole, which is one of stagnation.”
He continued: “This is largely the result of the ECB’s tight monetary policy, which has successfully brought inflation back under control.
“Given this, the ECB will soon be able to take its foot off the brake pedal, allowing growth to recover. CEBR anticipates a cut in April, followed by three more throughout the year.”
The data follows recent inflation and labour market releases in the past few weeks. November saw record-low levels of unemployment (6.4 percent), strong wage growth (5.3 percent) for Q3 and a surprise uptick in inflation (2.9 percent) in December.
Despite such conditions pointing towards upward inflationary pressure, the ECB focused on the decelerating trend in core inflation since July 2023 in the decision to hold the interest rates for the fourth consecutive monetary policy decision, Mr Haniffa pointed out.
Given today’s “stagnant GDP recordings”, it is evident that the aggressive monetary policy campaign to combat inflation had “permeated” through the economy through lower demand conditions, a CEBR analysis explained.
With core inflation continuing to ease towards the target, the ECB should therefore be in a position to begin ”lifting the hand brake” in the next few months, with CEBRgradually expecting the first rate cut in April.
Nevertheless, the impact of a rate cut is “likely to be felt only gradually”, with the CEBR forecasting a modest growth rate of 0.9 percent for 2024.
A separate report published earlier this month suggested dramatically reduced manufacturing output had left the Eurozone in recession, a new report has warned – with France at its lowest ebb for more than three years.
Dr Cyrus de la Rubia, Chief Economist at Hamburg Commercial Bank (HCOB), said what he called a “relentless slump” spelt a “bleak picture”.
Dr de la Rubia also suggested the monetary union slid into recession in the third quarter of last year.