The eurozone achieved growth in the last three months of 2022, managing to avoid recession, although extremely high energy costs, declining confidence and rising interest rates have dealt a heavy blow to the currency bloc’s economy, Reuters reports.
According to Eurostat data gross domestic product in the euro area increased by a meager 0.1% in the fourth quarter, beating expectations for a 0.1% decline. Compared to a year earlier, growth was 1.9%, beating forecasts of 1.8%.
Eurostat said that among the largest eurozone countries, Germany and Italy recorded negative growth rates for the quarter, but France and Spain saw gains.
Russia’s nearly year-long war in Ukraine has cost the eurozone, which currently encompasses 350 million people in 20 countries, a heavy toll on some member states’ dependence on cheap energy.
Higher oil and gas prices have depleted savings and held back investment, while forcing the European Central Bank to act unprecedented increases in interest ratesto stop inflation.
But the economy also showed unexpected resilience – like the COVID-19 pandemic, when growth exceeded expectations as businesses adapted to changed circumstances faster than policymakers anticipated.
Some indicators suggest that growth may have bottomed out and is already beginning a slow recovery, helped by generous government support and a mild winter that has curbed energy costs.
However the overall picture remains weak, with a meager growth forecast for 2023. due to the large decline in real incomes and rising interest rates.
“The headline GDP figure gives a misleadingly favorable impression of economic conditions in late 2022.”said Ken Watret, an analyst at S&P Global Market Intelligence.
“The key takeaway from the Member States’ data is the extent of the weakness in private consumption, with the sharp contraction in real household incomes due to rising inflation being overdue,” he added.
The ECB raised interest rates by a total of 2.5 percentage points to 2% from July in a bid to tame inflation, and markets see another 1.5% hike by mid-year, which would put the deposit rate at its highest level since turn of the century.
Such a rapid increase halts bank lending, a key source of business credit access to credit has already suffered its biggest drop in the last quarter since the bloc’s 2011 debt crisis.
“In the coming months, the noticeable tightening of monetary policy will increasingly slow the economy,” Commerzbank economist Christoph Weil predicted.
“We continue to expect the eurozone economy to contract slightly in the first half of the year, and the expected recovery in the second half is likely to be weak.”.
