Eurozone sinks into recession

The eurozone economy shrank both in the first quarter of 2023 and the last quarter of 2022, the European statistics office Eurostat announced on Thursday. Technically, this means that all EU states using the European single currency have gone into recession. Initially, Eurostat had announced a stagnation in the last quarter of 2022 compared with the previous quarter and a 0.1% growth in the first quarter of 2023, but the revised figures  show a drop in the eurozone GDP by 0.1% in both quarters.

On the other hand, the EU's and euzone's economy saw a growth rate of 1% in the first quarter of 2023 compared with the similar period in 2022. The highest GDP levels are recorded in Spain, Cyprus and Malta, all with more than 3%, followed by Romania, with 2.8%. Significant decreases were reported in Estonia, Lithuania and Hungary. Based on the seasonally adjusted data, the GDP of the European Union and the eurozone was 2.9% and 2.2%, respectively, above the level recorded in the fourth quarter of 2019, just before the pandemic. So the eurozone economy went into recession in the first three months of the year, while the EU has avoided recession. The highest economic growth rate in the European Union in the first quarter of 2023 compared with the previous three months was recorded in Poland, Luxemburg and Portugal, and the most significant decline was recorded in Ireland, Lithuania and The Netherlands. Romania saw a 0.1% growth rate in the first quarter of 2023 compared with the previous three months, when its GDP went up by 1%.

The significant revision made by Eurostat is explained first of all by the new data with regard to Germany's performance, Europe's main driving engine, which shows that the country also went into recession at the start of 2023 due the difficulties faced by the industrial sector. There are also question marks about the prospects for the entire year. In May, the European Commission was counting on a 1.1% growth rate in 2023 for the 20 states that are part of the eurozone. Now, however, this figure seems optimistic, says the economist of a big European bank who forecasts a growth rate of only 0.5% for the entire year. According to Charlotte de Montpellier, the European economy is in a state of stagnation and faced a difficult year because of the shock of the energy prices. Although gas and petrol prices have dropped in recent months, last year's explosion in prices had a considerable impact on households, who reduced their consumption.

Europe's economy is also affected by the increase in the reference interest rates by the European Central Bank, a measure that reduces the demand for loans and puts a brake on investments, especially in the real estate sector, leading to a decrease in activity in the building sector. The economic slowdown seen by the US and China's slow recovery also have an effect on European exports. (CM)