The EU’s economy has achieved positive growth for four consecutive quarters, but it has not escaped the risk of recession
According to preliminary data released by Eurostat on January 31, the gross domestic product (GDP) of the euro zone will grow by 3.5% in 2022 and that of the EU by 3.6%. In addition, the economy of the euro zone grew by 0.1% quarter-on-quarter in the fourth quarter of last year, achieving positive growth for the fourth consecutive quarter.
Analysts pointed out that due to the unusually warm weather this winter partially easing the energy crisis, and the financial support of many EU countries has also increased, the EU economy has been able to avoid recession and perform better than market expectations. However, at present, the economies of many EU member states are still in a state of stagnation near zero growth, failing to completely get rid of the risk of recession, and the outlook is still bleak.
Data show that among the major European economies, Germany and Italy were severely affected by the energy crisis, and their economies shrank slightly in the fourth quarter of last year, while France and Spain barely maintained a small growth rate.
Germany, the locomotive of the European economy, saw its GDP fall by 0.2% quarter-on-quarter in the fourth quarter of last year, which was lower than market expectations. The economic outlook is not optimistic. Carsten Brzeski, head of the macro research department of ING, a well-known financial institution, pointed out that there are few signs that the German economy will recover healthily in the short term. Didn’t really boost the economy.
Experts believe that tight energy supply, high inflation and tightening monetary policy will be the main challenges facing the EU economy this year.
The International Energy Agency recently “sounded the alarm” on Europe’s energy supply situation in 2023, arguing that Europe should not relax its vigilance due to the recent drop in energy prices, and urged governments to take immediate action to ensure energy supply security. The agency expects the EU to face a gas shortage of about 27 billion cubic meters in 2023, accounting for about 6.8% of the EU’s total baseline natural gas demand.
The current level of inflation in Europe remains high. Although the inflation rate in the euro area fell for the first time in 17 months in November 2022 and continued to slow down to single digits in December, this is still a long way from the goal of fully controlling high inflation or stabilizing prices . High inflation is constantly eroding the purchasing power of consumers, and domestic demand in many European countries is shrinking. Bert Clariant, senior economist at ING, pointed out that after the epidemic stabilized for a period of time, consumption experienced a strong rebound, but now consumers are adjusting their spending, and household consumption in Germany, France and Spain has all contracted sharply.
The current inflation level and expectations in the euro zone are still far above the 2% inflation target set by the European Central Bank. The European Central Bank stated that it will continue to tighten financing conditions and fight inflation at all costs. From July 2022 to the present, the European Central Bank has raised interest rates by a total of 250 basis points four times in a row to curb inflation.
The ECB’s next monetary policy meeting will be held on February 2. Economists generally predict that the European Central Bank will continue to raise interest rates by 50 basis points. Melanie de Bono, senior European economist at Pantheon Macroeconomics Research, said the European Central Bank will continue to adopt aggressive tightening policies to fight inflation.
Continued aggressive rate hikes by the European Central Bank will increase borrowing costs for businesses and households, leading to a slowdown in economic activity. Some economists believe that the euro area may still fall into recession.
Clariant said that in the context of the overall weak global economy, it is uncertain whether the euro zone’s exports can continue to grow, and investment will also face pressure from interest rate hikes. The Eurozone economy is expected to perform weakly in early 2023, and the possibility of negative growth in the first quarter cannot be ruled out.
Andrew Kenningham, chief European economist at Capital Economics, believes the euro zone will slip into recession in the first half of the year as the impact of tightening monetary policy from the European Central Bank intensifies, households struggle amid a cost of living crisis and external demand downturn.
In addition, in order to prevent the economy from falling into a deep recession, many European governments have provided a large amount of financial support for “blood transfusion”, resulting in a significant deterioration of the public financial situation. A weak economic recovery could weigh on the strength of fiscal stimulus and jeopardize the sustainability of government debt. (Story by Xinhua News Agency, Brussels, January 31)