It’s pretty difficult to sensationalize a 0.1% contraction. Even when you have two of them in a row to work with.
I won’t pretend that Thursday’s revisions to Europe’s growth numbers for Q1 are the stuff headlines are made of, but then again, recessions make good headlines (or bad headlines, depending on how you want to look at it), so I’m compelled to note that Europe didn’t dodge a winter recession after all.
Euro area GDP was revised to show a 0.1% decline for the first quarter, putting the bloc’s economy in the shallowest of shallow recessions.
As a quick (but relevant) aside, eurostat can be maddening to work with. Updates to the GDP series are littered with historical revisions of one or two tenths of a percent, which means that if the preliminary read for a given quarter reflects no growth, it’s a decent bet that the revised figures will show either a small expansion or the mildest of contractions.
You’re reminded that Germany fell into recession during Q1, when the bloc’s largest economy (and the world’s fourth-largest) shrank 0.3% on the heels of a half-point contraction last last year. In France, Q1’s 0.2% expansion was barely better than the flat reading for Q4. The French economy has essentially been stagnant for three straight quarters. Italy, by contrast, rebounded smartly in Q1 with a 0.6% expansion from a small contraction the prior quarter.
Although “recession after all” was the obvious headline choice on Thursday, the overarching narrative vis-à-vis the European economy, the war and energy costs remains unchanged: It could’ve been far, far worse. Let’s not forget that as recently as October, there were still fears that Europeans might freeze to death over the winter. Literally.
An existential crisis was averted thanks to relatively mild weather and a veritable plunge in natural gas prices, which are down by two-thirds in 2023. Benchmark prices fell a ninth straight week to start June, although they’ve risen sharply this week.
Futures for this December are currently trading at a discount to December 2024 futures, suggesting some relative angst looking out 18 months, but… well, let’s just say a lot can happen in 18 months. It might be all robots by December 2024 for all we know.
Jokes aside, there are risks aplenty. It’s difficult to imagine the Nord Stream will ever be considered a source of reliable energy again, and even if some in Europe would be willing to forgive and forget, Ukraine might have different ideas. In 2026, the US and Qatar should be able to meet Europe’s energy needs. What happens between now and then is really just anyone’s guess.
As for Europe’s “recession,” it’s probably already over, and inflation is abating, even as policymakers, including Christine Lagarde, remain extremely wary with services sector price growth and measures of core inflation still running near record highs.
“These declines are so minimal that current economic circumstances are better described as broad stagnation,” ING’s Bert Colijn said Thursday, of Europe’s “recession.” “Overall, the eurozone economy is very much back to muddling through, as monetary policy starts to weigh more heavily on activity and post-pandemic spending fades.”
