Europe Avoids A Recession, By The Skin Of Its Teeth

Europe Avoids A Recession, By The Skin Of Its Teeth
Carl Hazeley

23 days ago1 min

Economic growth across Europe came in at a very flat 0% – that’s zero, zilch, nada – for the final three months of 2023. But that’s a zero worth cheering about.

With that nice round goose egg – instead of a second consecutive negative number on its quarterly growth – the eurozone economy managed to avoid a “technical recession” by just the thinnest of margins.

What does this mean?

Europe’s big economies aren’t having the best of times. The German economy – the bloc’s biggest – shrank 0.3% in the fourth quarter, while France’s flatlined. Spain, meanwhile, expanded a 0.6% compared to the third quarter.

And those figures highlight some key differences across the eurozone’s economies. See, Spain is benefitting from its economy’s heavier dependence on services – especially tourism – and its minimal exposure to factory productions. Meanwhile, in Germany and France, a slowdown in manufacturing – brought about by weaker global demand – is taking a heavy toll.

Zooming out: Cue the interest rate cuts.

Taken together, the eurozone economy has been stagnating, and that’s partly thanks to a recent run of interest rate hikes from the European Central Bank (ECB), aimed at battling the bloc’s record-high inflation. But now with inflation closer to the ECB’s target, some of those hikes might soon be reversed.

Just don’t expect these economies to all jump higher at once when those rate cuts come: economists at abrdn say they expect a slow recovery later this year, as Europeans adjust to lower interest rates, cooler inflation, and an overall sunnier picture for wage growth.

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