Eco Pulse

Eurozone: Will a contraction in GDP be avoided again in Q4?

01/27/2023
PDF
Eurozone: economic indicators quarterly changes

In December 2022, according to the European Commission surveys as well as the Standard Poor's Global PMIs, the business climate improved quite significantly, surprising positively despite the accumulation of shocks. The improvement was evident in all sectors as well as in the leading sub-components (those related to new orders). However, the level of the surveys remains relatively depressed.

In December, consumer confidence continued its recovery for the third month in a row. While starting from a very low level, this improvement is nonetheless encouraging, driven by smaller concerns about unemployment and inflation.

The sharp fall in inflation in December (down around 1 point, at 9.2% year-on-year), which surprised expectations very favourably, is the most positive news in this month’s economic picture, although it should be put into perspective by the absence of a fall in core inflation. The latter actually increased further to 5.2% (+0.2 points), due to the acceleration in the prices of manufactured products and of services. However, inflationary pressures are continuing to diminish, and this should ultimately drive core inflation down.

Given the signs of resilience in the economy and core inflation, the ECB shows its determination to continue with the tightening of its monetary policy. We are now expecting policy rate increases to be extended beyond Q1, driving the terminal point a little higher (3.25% instead of 3% for the deposit rate).

Thanks to favourable surprises in a number of Q4 indicators, including in the hard data (production and consumption in November), growth prospects appear much less negative than had been feared. The supporting factors appear to be stronger (fewer supply problems, fiscal measures) and the headwinds not so severe (energy crisis less acute). According to our Nowcast estimate, Eurozone GDP is even expected to avoid a contraction and growth would be zero. We have also raised our forecast, but it remains slightly negative (-0.1% q/q instead of -0.4%).

GDP growth q/q: actual, carry-over and forecasts

Hélène Baudchon

THE ECONOMISTS WHO PARTICIPATED IN THIS ARTICLE

Other articles from the same publication

Germany
Germany : Recession less severe than anticipated

Germany : Recession less severe than anticipated

Business climate indicators in recent months have been affected by the significant impact of the energy shock, as well as by fears that this shock will get worse during the winter [...]

Read the article
France
France: Winter spleen

France: Winter spleen

The gradual deterioration in the business climate suggests a slowdown in French growth, which may even have fallen into negative territory in the 4th quarter, a contraction which would be consistent with the decline in the balance of opinions about production in the economic survey in industry. [...]

Read the article
Italy
Italy: Wage growth not taking off

Italy: Wage growth not taking off

The obstacles which the Italian economy is facing remain significant. Unlike its European neighbours, inflation in Italy is not slowing down. It fell only slightly in December, from 12.6% to 12.3%, and remains the highest in Western Europe [...]

Read the article
Spain
Spain: Activity treads water

Spain: Activity treads water

Most of the measures to freeze energy prices will be maintained in 2023 and the Prime Minister Pedro Sanchez unveiled a new budget of EUR 10 bn intended to support households [...]

Read the article
United States
United States: Resilience

United States: Resilience

According to January’s Beige Book published by the Federal Reserve (Fed), economic activity has remained relatively unchanged in all 12 districts since the previous report [...]

Read the article
United Kingdom
United Kingdom: Further contraction in GDP on the horizon

United Kingdom: Further contraction in GDP on the horizon

According to the latest business surveys, economic activity in the UK continues to contract [...]

Read the article
Japan
Japan: Inflation continues to rise

Japan: Inflation continues to rise

Inflation continues to weigh on consumer confidence, while a large proportion of Japanese households will see further increases in the price of electricity next March, with most suppliers having announced price increases from this month. [...]

Read the article