Eurozone economy

GDP in the eurozone increased by 0.1% compared to the previous quarter

In the fourth quarter of 2022, GDP in the eurozone increased by 0.1% compared to the previous quarter. Compared to the same period in 2021, the growth was 1.9%. Reuters informs about it with the reference to Eurostat’s data.

At the same time, in the fourth quarter, analysts expected a decrease in GDP by 0.1% q/q, and growth by 1.8% in annual terms.

Among the largest countries of the Eurozone, Germany and Italy registered a decrease in GDP in the fourth quarter. On the other hand, in France and Spain, according to a quick estimate of Eurostat, which can be revised, its growth was recorded.

The Russian invasion of Ukraine has had a serious impact on the Eurozone, which currently includes 350 million people in 20 countries, given the strong dependence of some states on cheap energy sources. Rising oil and gas prices have drained savings and dampened investment, forcing the European Central Bank to raise rates unprecedentedly to curb inflation.

However, as noted, the Eurozone economy, as during the pandemic, has shown some resilience. Fresh data, such as the confidence indicator or the latest business activity indices (PMI), suggest that a slow recovery is already underway. This is facilitated by a mild winter – thanks to the weather conditions, energy costs are lower.

However, due to a significant fall in real incomes and rising interest rates, growth in 2023 will be one of the weakest on record.

From July 2022, in order to quell inflation, the European Central Bank raised interest rates by 2.5 percentage points, up to 2%. By mid-2023, markets expect an increase of another 1.5 percentage points, which will lead to the highest level of the deposit rate since the beginning of the century. Such rapid growth is hampering bank lending, which is key to business.

At the same time, the International Monetary Fund improved its forecasts for the world economy compared to previous ones in October 2022. It is stated in the updated World Economic Outlook.

The IMF expects global growth to slow from 3.4% in 2022 to 2.9% in 2023 and recover to 3.1% in 2024. In 2022, the bank’s economists predict that the growth in the Eurozone will be only 0.7%.

“Analysts underestimated the level of economic growth. This pessimism was understandable, because the supply of energy sources was under threat, and prices did not allow a number of industries to operate profitably. However, as we can see, panic prevented an adequate assessment of the situation. Better economic indicators will have a positive impact on the steel market as well – it is currently clear that demand was underestimated, and purchases will be more active. Active inventory reduction in October-December 2022 will lead to a paradigm shift in sentiment. A large part of the steel capacities is idle, and price growth may be more active than we expected,” noted GMK Center chief analyst Andrii Tarasenko.

As GMK Center reported earlier, Germany’s GDP in the fourth quarter of 2022 has decreased by 0.2% compared to the previous quarter. German GDP increased by 0.5% q/q in the third quarter of last year, so the unexpected drop in October-December signals the start of a recession in one of Europe’s largest economies.