Technically, Europe’s not in a recession. In every other sense, it is.
The eurozone economy was stagnant last quarter, data released on Tuesday showed. That was better than the contraction consensus expected and it means the bloc doesn’t meet the two-quarter definition of a recession.
But nobody’s under any illusions: Considered as a whole, the euro-area is experiencing unenviable economic drudgery.
Q4 marked the fifth straight quarter during which growth was either moribund or negative. You can thank ECB rate hikes and the war for the malaise.
PMIs released last week suggest the situation is a lot like Ukraine: A quagmire with no end in sight.
“There are some green shoots [but] we only expect a material improvement much later in the year,” ING’s Bert Colijn said Tuesday. “The eurozone economy has now been broadly stagnating since late 2022, has lost substantial ground to the US in terms of GDP [and] has now entered a phase of prolonged weakness.”
Not surprisingly, Germany was the laggard. Europe’s largest economy recorded a 0.3% contraction for Q4, as tipped previously. January’s Ifo release offered little in the way of hope for an imminent recovery.
In France, the economy was stagnant. Again. “All the components of [French] GDP declin[ed] over the quarter with the exception of public spending,” ING wrote, in a separate note, adding that “the sharp fall in both household and business investment and the fall in consumption indicate the French economy continues to suffer from high interest rates, high inflation, pressure on purchasing power and weak actual and expected demand from businesses.”
Spain was a bright spot, notching a 0.6% expansion, and the Italian economy managed to expand as well, but consistent with the message from the flash PMIs mentioned above, the bloc’s two powerhouses (Germany and France) are struggling.
Regardless of how rates traders interpret the data, the figures don’t make the case for a prolonged stay at terminal if you’re the ECB. That’s not to suggest an April rate cut is a sure bet, but unless the situation turns around in a hurry, Christine Lagarde may have a difficult time making it to summer without commencing cuts.
