Unexpected growth for the Eurozone: better than expected results at the end of 2022

The report on the eurozone economy for the fourth quarter of 2022 came out better than expected, easing fears of a possible regional recession. According to preliminary data from Eurostat released on January 31, the eurozone exceeded expectations for positive growth in the fourth quarter.

The eurozone grew by 0.1% in the final quarter of last year, beating economists’ expectations for a 0.1% contraction in the same period. This follows a 0.3 percent increase in GDP in the third quarter of 2022.

The Eurozone in 2022 Q4

Prior to the fourth quarter of 2022, the Eurozone was burdened by Russia’s invasion of Ukraine. Due to the war, long-standing supply chain constraints persist with food and energy inflation. Amid the economic slowdown that has affected the entire eurozone over the past year, economists have warned of a potential recession. According to the economist, the 20-member region could enter an economic recession.

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The reduction in energy prices toward the end of the fourth quarter of 2022 has brought some calm to the storm affecting the economic performance of the Eurozone. According to preliminary data, the eurozone is expected to grow by 1.9 percent in the fourth quarter compared to the fourth quarter of 2021. A Eurostat economist wrote:

“The preliminary GDP report for the eurozone shows that economic growth slowed again in the fourth quarter but did not fall outright, defying the message of business surveys.”

On the other hand, Germany’s slowed by contracting 0.2 percent in the final quarter of 2022. Based on recent figures, expectations are high that Berlin is headed for a recession. Salomon Fiedler, an economist at Berenberg, noted that “Germany probably entered a shallow and short recession in the fourth quarter before the economy stabilized in the second quarter [de 2023].

Italy, which is the third largest economy in the eurozone, experienced negative growth in the fourth quarter of 2022. Growth fell 0.1 percent over the period due to the disruption of Rome and Berlin’s ties to Russian gas. Debono of Macroeconomics said:

“Taking today’s data at face value means that the eurozone probably avoided entering a technical recession this quarter, just. This will encourage the ECB to continue its aggressive tightening of monetary policy to fight inflation.”

The central bank is expected to meet on Thursday and decide on its next policy moves. According to a survey by the Economist, Reuters and Factset expect the ECB to conclude with a 50 basis point interest rate hike.

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Although results exceeded expectations in the fourth quarter of 2022, some economists predict that the eurozone could enter a recession later in the year.

Looking ahead, we believe the eurozone (excluding Ireland) will enter recession in the first half of this year as the effects of ECB policy tightening intensify, households struggle with the cost of living crisis and external demand remains sluggish” said Capital Economics’ chief European economist Andrew Kenningham.

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