According to updated data released on Thursday, the 20-nation GDP contracted by 0.1% between January and March, compounding a 0.1% decline in the fourth quarter. Winter saw the euro area experience the mildest recession imaginable as a result of the rise in energy costs brought on by Russia’s conflict in Ukraine. The decision will come as a shock after politicians and executives from the European Central Bank repeatedly claimed that a slump could be avoided even as inflation shot up to its highest level since the introduction of the euro.
According to updated figures released on Thursday, the 20-nation GDP dropped by 0.1% from January to March, adding to a 0.1% decline in the fourth quarter to provide the first six-month contraction since the Covid-19 pandemic. Bloomberg surveyed analysts who believed output was stagnant at the beginning of the year. The decision will come as a shock after politicians and executives from the European Central Bank repeatedly claimed that a slump could be avoided even as inflation shot up to its highest level since the introduction of the euro.
The European Commission improved its forecast for the area and now expects the region’s GDP to grow by 1.1% this year and 1.6% in 2024
But policymakers can be encouraged by the fact that their billions of euros in household assistance for the EU prevented much worse economic damage from occurring after Russia’s invasion. Governments plan to continue reducing budgetary support now that growth has probably recovered this quarter. The ECB is also not expected to shift course as it nears the conclusion of its unprecedented campaign of interest rate increases and believes that reducing inflation is a requirement for long-term economic growth.
According to Eurostat, the euro area’s first-quarter downturn was caused by a decline in government and household spending. While trade boosted output, inventories had a negative impact. The information comes from German statistics that show that Estonia has not had economic growth since the end of 2021, while Greece, Ireland, and Estonia all experienced winter recessions. In the first quarter, the economies of three other euro-area nations—Lithuania, Malta, and the Netherlands—also shrank.
Since then, things have gotten better. Last month, the European Commission improved its forecast for the area and now expects the region’s GDP to grow by 1.1% this year and 1.6% in 2024. There are also positive signs of inflation. While price gains remain three times the 2% target, the headline and underlying measures both retreated more than anticipated last month, and consumers’ expectations are also moderating. That won’t stop the ECB from raising its deposit rate by a quarter-point to 3.5% next week.