Eurozone Escapes Recession By A Slim Margin, Faces Ongoing Economic Challenges In 2024

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The eurozone narrowly avoided recession in Q4 2023, the persistent fragility of the economy, influenced by factors like energy shocks, geopolitical tensions, and limited fiscal stimulus, presents ongoing challenges as the region moves into 2024. The European Central Bank faces increasing pressure to address economic concerns, raising questions about the trajectory of borrowing costs in the monetary union.

Official figures have revealed that the 20-nation Eurozone narrowly escaped recession as the region’s economy came to a standstill at the end of 2023. The final quarter of last year saw zero growth, following a 0.1% economic contraction in the third quarter.

Economists surveyed by Reuters had anticipated a 0.1% shrinkage in the fourth quarter. The threat of recession, defined as two consecutive quarters of contraction, was just averted.

Major economies, Germany and France, both underperformed, with Germany contracting by 0.3%, and France experiencing no growth for a second consecutive quarter, according to Eurostat, the EU’s statistical agency.

Despite this, the remaining two members of the eurozone’s “big four” provided more positive results. Italy, expected to stagnate, recorded growth of 0.2%, while Spain expanded by 0.6%, three times the predicted 0.2%.

Among the smaller eurozone economies, Portugal rose by 0.8%, Austria expanded by 0.2%, and Ireland’s economy contracted by 0.7%, marking its fourth successive quarterly fall in 2023.

Eurostat reported that the broader 27-nation European Union also saw no growth in the fourth quarter.

From the fourth quarter of 2022 to the final quarter of 2023, the eurozone grew by just 0.1%, while the EU grew by 0.2%.

Reportedly, the stagnation of the eurozone’s economy is expected to intensify pressure on the European Central Bank, responsible for setting interest rates for the monetary union, to consider reducing borrowing costs.

Bert Colijn, a senior economist at ING bank, noted, “A technical recession has just been avoided in the eurozone.” However, he highlighted that the eurozone’s economy has been stagnating broadly since late 2022, losing substantial ground to the US in GDP terms in recent years.

Following the robust post-pandemic reopening phase, the economy has entered a period of prolonged weakness. Since Russia invaded Ukraine nearly two years ago, the eurozone has grappled with elevated energy and food prices and the resulting impact on business and consumer confidence. The European Central Bank raised interest rates last year to their highest level since the euro’s launch in 1999.

A statement was made by Nicola Mai, an economist at asset manager Pimco, indicating that despite a resilient early start in 2023, the eurozone economy was weak through much of the year and that this fragility was expected to persist in 2024.

He further cited ongoing challenges such as Europe recovering from a lingering energy shock, experiencing less fiscal stimulus than the more resilient US economy, and shorter debt maturities, making interest rate hikes more acutely felt in the region.

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