source: AFP in Le Journal de Montreal, Thursday, 8 June 2023
author: DANIEL ARONSSOHN | AFP
translation: BingTranslate/doxa-louise
The Eurozone in recession
The euro zone entered recession this winter, penalized by the decline in consumption under the effect of price increases and the difficulties of German industry, according to data published Thursday by Eurostat.
The GDP of the 20 countries sharing the single currency fell by 0.1% between January and March, after a decline of the same magnitude from October to December, figures revised downward sharply compared to previous estimates.
The European Statistics Institute (EUROSTAT) has so far reported growth of 0.1% in the first quarter following stagnation (0%) at the end of last year.
The downward revision is largely due to the recent downgrade of Germany's figures. Europe's largest economy announced at the end of May that it had entered recession due to a decline in activity at its industrial companies.
The new figures cloud the outlook for the zone for the year as a whole. In mid-May, the European Commission forecast growth of 1.1% in 2023.
The figure now seems "optimistic," Charlotte de Montpellier, an economist for ING bank, told AFP. It forecasts only 0.5% over the full year.
' All Bad Data'
"Since the spring, all the data has been bad," she said, pointing in particular to German industrial production and new orders. She continued, "the European economy is in a phase of stagnation and has struggled to get through the winter because of the energy shock".
Although oil and gas prices have fallen in recent months, last year's price surge had a significant impact on household confidence. Inflation remains high, at 6.1% in May, despite a decline, and price increases are now affecting food, manufactured goods and services.
Household consumption expenditure fell by 0.3% in the first quarter, after having already fallen by 1% over the previous three months, Eurostat detailed on Thursday.
The European economy is also affected by the rise in interest rates by the European Central Bank (ECB), which reduces demand for credit and slows down investment, particularly in real estate, leading to a decline in construction activity.
Moderate slowdown in the U.S.
The slowdown in the United States and the weaker-than-expected recovery in China are also weighing on exports.
"We think the economy will contract again for the rest of the year," said Andrew Kenningham, an expert at Capital Economics, who points to "the effects of the tightening of monetary policy" of the ECB, forced to fight inflation.
"Unfortunately there are not so many elements that can give hope for a rebound over the coming months," said Charlotte de Montpellier.
German and European industry has been "destabilized" by a series of shocks: supply chain problems, energy spikes, global slowdown.
But its difficulties are also structural. It suffers from losing access to Russian gas, as deliveries have been interrupted in the context of the war in Ukraine. It also suffers from its dependence on Chinese suppliers in renewable energy, which is booming. In the automotive sector, Chinese manufacturers are taking advantage of electrification to overtake their German competitors.
Germany saw its GDP decline by 0.5% in the last quarter of 2022, then by 0.3% from January to March.
It finds itself with "activity currently below its pre-pandemic level in 2019, while other countries (in the euro area) are much better placed. The former star of the European economy no longer shines," said Ms de Montpellier.
Conversely, Spain and Italy grew by 0.5% and 0.6% respectively in the first quarter, with southern European countries, less industrialized, taking full advantage of the increase in tourism after the end of restrictions that paralyzed the sector during the health crisis.
For its part, the France maintained moderate growth (0.2%) in the first quarter.
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