Euro zone avoids recession as economy expands in fourth quarter

The euro zone financial system grew within the remaining quarter of 2022 regardless of economists predicting a recession, boosting hopes the area will keep away from recession.

Delicate climate and authorities help cushioned the impression of hovering power costs, serving to the area’s financial system develop 0.1 p.c between the third and fourth quarters, in accordance with official knowledge from Eurostat on Tuesday.

The enlargement was higher than the 0.1 p.c decline forecast by economists polled by Reuters. The identical survey additionally forecast one other quarter of contraction within the first three months of 2023.

Bert Collin, senior economist at ING, mentioned the area’s financial system had proven “unbelievable resilience” within the face of an power disaster sparked by Russia’s invasion of Ukraine.

Knowledge on Tuesday confirmed the area grew in each quarter by means of 2022, for a full-year enhance of three.5%.

John Leiper, chief funding officer at Titan Asset Administration, mentioned the numbers had been “fairly an achievement” given the headwinds going through the area.

Companies and households additionally needed to cope with larger borrowing prices after the European Central Financial institution raised rates of interest by 2.5 share factors within the second half of final yr in response to inflation peaking at 10.6%.

Only a few months in the past, economists had been predicting a deep recession and power shortages. However winters have been much less chilly than feared, and decrease gasoline costs and beneficiant authorities help have helped avert that.

Tuesday’s knowledge is more likely to come into focus for the European Central Financial institution, which is in search of to make sure inflation returns to its 2 p.c goal. Markets count on the European Central Financial institution’s Governing Council to boost its benchmark deposit charge by half a share level to 2.5 p.c when it meets on Thursday.

The central financial institution’s dedication may additionally be supported by the newest value knowledge. French inflation accelerated in January, whereas Spain’s core client value inflation, which excludes meals and power, rose to an all-time excessive.

Earlier within the day, knowledge confirmed that the French financial system additionally managed to keep away from a recession.

The euro zone’s second-largest financial system grew by 0.1% between the third and fourth quarters, French nationwide statistics workplace Insee mentioned. The determine beat economists’ expectations for no change.

Tullia Bucco, an economist at UniCredit, mentioned the French figures had been “encouraging information”. Nevertheless, Charlotte de Montpellier, a senior economist at ING, mentioned the French financial system can be “near a standstill” this yr.

Germany on Monday reported a 0.2% contraction within the fourth quarter, placing the euro zone’s largest financial system on the point of recession.

Knowledge on Tuesday confirmed Italy’s financial system additionally contracted, however by simply 0.1%, lower than feared. In line with knowledge launched final week, the Spanish financial system grew by 0.2%.

However detailed nationwide knowledge from France and Spain confirmed sharp declines in imports, suggesting that demand from companies and households was weakening. Family consumption fell sharply in each international locations, and Germany additionally reported that non-public spending was the motive force of the decline in GDP.

Euro zone knowledge was additionally boosted by a powerful efficiency from Eire, which posted a 3.5% enhance. The area’s GDP wouldn’t have grown with out Eire’s contribution.

“The worst has been prevented this winter,” Colin mentioned. “However the financial system stays depressed.”