The Euro showed a positive response to the news that the Eurozone has managed to avoid its first recession since the pandemic. Despite challenges in Germany's growth rates, stronger performance in Italy and Spain balanced the overall outlook. In return, EUR/USD is trading around 1.08.
The latest data revealed that Eurozone GDP remained stable in Q4, contrary to economists' predictions of a second consecutive 0.1% contraction following a similar decline in Q3. This lack of GDP contraction means that the region did not experience a technical recession, defined by a decline in GDP for two consecutive quarters.
However, the Eurozone countries are still grappling with high borrowing costs, weak foreign demand, and heightened geopolitical tensions, leading to less optimistic conclusions.
Recent data indicates a relatively weak start to 2024, particularly as Germany, the largest economy in the region, entered a technical recession. While the European Central Bank aims for a soft landing in the face of inflation challenges, the expected reduction in borrowing costs might not be sufficient to revive economic growth.
In terms of current economic conditions, the consumer confidence indicator released by the European Commission today paints a less-than-rosy picture. The industry and services sectors show optimism, but this is offset by a downturn in the consumer and retail sectors.
Now, let's delve into the GDP reports of individual countries.
France's performance aligned with economists' estimates, as its GDP grew by 0.9% for the full year 2023, rebounding from a previous 0.1% contraction. However, the economy is not expected to recover quickly in 2024, given the lingering impact of a prolonged slump and inflationary pressures on households.
Spain's GDP outperformed expectations, growing by 0.6% in the fourth quarter, driven by increased household consumption. This contributed to a 2.5% economic growth in 2023. Despite this positive growth, inflation in Spain also accelerated to 3.5% year-on-year.
As noted earlier, Germany, the largest economy in Europe, experienced its second consecutive quarter of GDP contraction. The situation may improve if the manufacturing sector gains momentum soon, but current indicators offer little hope. The data reveals a 0.3% contraction in German GDP in the fourth quarter compared to the third quarter. Both foreign demand for German goods and domestic consumer spending show reluctance to recover.
This article was written in cooperation with TradingView