The eurozone unexpectedly avoided a first recession since the pandemic in the latter half of 2023 as firmer growth in Italy and Spain offset the malaise in Germany.
Gross domestic product stagnated in the fourth quarter — better than the 0.1% decline analysts had estimated as the 20-nation bloc navigates elevated interest rates and flimsy foreign demand.
Euro-Area Output Watch
Gross domestic product (QoQ)
Source: Eurostat, Destatis, Insee, Istat, INE
Survey data suggest the start of this year continues to be relatively weak, especially as Germany — the region’s biggest economy — succumbs to a downturn. But the overall picture represents the soft landing that the European Central Bank had been hoping for, and is unlikely to hasten the prospect of interest-rate cuts.
Economic Performance in the Final Quarter of 2023
Gross domestic product (QoQ)
Source: National statistics institutes
Note: Sweden is initial GDP indicator; Sweden and Czech Republic aren’t in euro area
Euro-zone GDP
The final quarter’s stagnation means the bloc once again avoided a recession by the slimmest of margins.
The result nevertheless underlines the bloc’s struggles amid high rates, low global demand, and the aftermath of the energy crisis. There’s no immediate end in sight: Private-sector surveys last week signaled an eighth month of contraction in January.
Speaking at last week’s ECB policy meeting, President Christine Lagarde said she expected fourth-quarter GDP to stagnate. As officials left the deposit rate at a record-high 4%, she said forward-looking service indicators suggest “a pickup in further growth ahead.”
Portugal GDP
Private consumption helped the economy expand 0.8% in the fourth quarter from the previous three months, when output fell 0.2%. Economists surveyed by Bloomberg had predicted growth of 0.3%. GDP advanced 2.3% in 2023.
The central bank in December cut its 2024 economic-growth forecast to 1.2%, citing a worse outlook for consumption and investment.
Bloomberg Economics on Germany
Economist Martin Ademmer:
“The deterioration in business sentiment at the beginning of the year suggests that Finance Minister Christian Lindner’s assessment of Germany as a tired but not sick man might prove overly optimistic. Moreover, sickness – in the literal sense – likely contributed to the economy’s weakness in past quarters.”
Germany GDP
Europe’s largest economy has been flirting with recession for several quarters but has managed to narrowly avoid one so far.
That could be about to change if momentum doesn’t pick up soon. Business surveys even signaled sentiment worsened slightly at the start of the year, and the Bundesbank has warned that output will “stagnate at best” in the first quarter.
That’s because foreign demand for German goods has shown few signs of a rebound, while consumers at home remain hesitant to spend money. Elevated sick leave is also holding back the economy.
GDP is likely to shrink by 0.2% between January and March, according to a projection Tuesday by the IFO Institute. “Companies in almost all sectors of the economy are complaining about falling demand,” forecasting chief Timo Wollmershaeuser said.
Italy GDP
GDP rose by 0.2% in the fourth quarter — beating economist expectations for stagnation thanks to the industrial and services sectors. In 2023, the economy expanded 0.7%.
Growth will probably slow a touch this year, with the central bank predicting it will come in at 0.6%. The impact of elevated ECB interest rates may test the country’s resilience, even after inflation plunged.
Bloomberg Economics on Spain
Economist Ana Andrade:
“With government spending and inventories making large contributions to growth, the headline reading probably overstates the strength of underlying demand. Headline inflation ticked up in January in line with our forecast, reflecting the government’s decision to gradually reverse energy tax cuts.”
Czech Republic
Outside the eurozone, the Czech economy narrowly avoided a return to recession in the final quarter of last year, growing 0.2% from the previous three months. Preliminary data showed exports were the main driver, while domestic demand also rebounded, the statistics office said.
The government and the central bank forecast a moderate recovery this year as real-wage growth fuels private consumption. However, lingering supply-chain disruptions continue to pose risks for key manufacturing industries relying heavily on imports of parts and materials.
Spain's GDP, inflation
The economy expanded 0.6% in the fourth quarter — far above the 0.2% that was expected and driven largely by household consumption, according to state statistics agency INE. That pushed 2023 growth to 2.5%.
The country has been a recent outperformer among other large euro-zone nations, having suffered a deeper contraction than most during the pandemic. The government is looking to slowly phase out aid packages put in place after Russia’s war in Ukraine sent energy costs soaring. But it’s rolled over the bulk of them into 2024 as it continues to prop up the economy.
Separately, Spanish inflation unexpectedly quickened to 3.5% from a year ago in January — defying the 3% estimate in a Bloomberg survey of economists. This is the first early-year price data from a major euro-zone member and could dash hopes that December’s uptick was a one-off.
Austria GDP
The country ended a six-month recession in the fourth quarter when output rose 0.2%. Still, for 2023 as a whole GDP fell 0.7%.
“The domestic economy stabilized at a low level at the end of the year,” said the Wifo Institute, which compiles the Austrian government’s statistics. “While the first signs of bottoming out can be seen in industry, the service sectors developed heterogeneously. Consumer and investment demand remained subdued.”
Bloomberg Economics on France (8:30 a.m.)
Economist Eleonora Mavroeidi:
“The French economy held up in the fourth quarter, but domestic demand slowed — both for household consumption and investment and for business investment. Overall, this suggests the economy is still struggling in the face of tight financing conditions. It also adds some modest downside risks to our forecast for growth to gather momentum in 1Q24.”
Lithuania GDP
The economy shrank 0.3% in the fourth quarter after stagnating in the previous three months — dragged down by industry, wholesale, retail, and transport.
The result comes despite the Baltic country boasting the European Union’s strongest consumer sentiment after inflation plummeted to just over 1% in December from 20% in early 2023.
Output is suffering from weaker demand in export markets, and while it’s expected to rise in 2024 as a whole, high financing costs and geopolitical uncertainty will weigh.
French GDP
France’s reading matched the estimate from analysts surveyed by Bloomberg. For the whole of 2023, GDP expanded 0.9%, according to statistics agency Insee, which also revised the third-quarter number up to zero from a 0.1% contraction previously.
The economy isn’t expected to stage a quick recovery in 2024 as manufacturers heal only slowly after a lengthy slump and households continue to feel the squeeze from inflation, even as it recedes.
The extended sluggish patch is a problem for Emmanuel Macron as his government relies on stronger expansion to repair public finances and restrain unemployment. A study by statistics agency Insee in December showed an uncharacteristically sharp acceleration would be needed to meet the forecast of 1.4% GDP growth that grounds the 2024 budget.
Macron also faces political difficulties as farmers prolong protests to demand more support and less bureaucracy from the state. He already replaced his prime minister this month to revive his presidency after a divisive debate over immigration.
Still, a separate publication from the statistics agency showed consumer spending was resilient in December with a 0.3% gain from the previous month. Economists had expected a stagnation after a 0.6% jump in November.
Consumer confidence has shown tentative signs of improvement. While still below its long-term average, the measure reached its highest level since February 2022.
— With assistance from Barbara Sladkowska, Ainhoa Goyeneche, Milda Seputyte, Marton Eder, Joao Lima, Giovanni Salzano, Peter Laca, Jana Randow, Rodrigo Orihuela, Alessandra Migliaccio, and Joel Rinneby