The European zone's economy is seen to stabilize in the fourth quarter of 2023, based on preliminary figures published by the European Union's statistical agency on Tuesday.
Based on the latest data, the EU is seen just narrowly avoiding the recession predicted in a Reuters poll of economists, following a 0.1% drop in GDP in the third quarter. Seasonally adjusted European zone GDP was flat compared to the previous quarter and grew by 0.1% compared to the previous year. In preliminary estimates, the European Union is expected to record growth of 0.5% throughout 2023.
Its largest economy, Germany, recorded an economic contraction of 0.3% in the final quarter of the year, based on figures also released on Tuesday. The country narrowly avoided a technical recession due to the adjustment to its reading for the third quarter, where the economy was in a stagnant phase. France's economy was stable in the fourth quarter, while Spain beat expectations to grow by 0.6%.
However, European zone sentiment indicators by the European Commission at the same time showed a decline in consumer confidence although the outlook for businesses in services and industry was slightly more optimistic.
The European zone economy is in a "prolonged weak phase" driven by Germany, while economies in southern Europe are leading the way in growth, Bert Colijn, chief economist at ING, said in a note.
The gap between the euro and the US dollar is seen widening, partly explained by a larger decline in inflation-adjusted wages, energy prices impacting industry, and lower levels of fiscal support.
The euro continued to post gains against the US dollar after data released on Tuesday, also recording narrow gains against the British pound. The US economy beat expectations for the end of the year, growing by 3.3% in the fourth quarter. UK figures are due out in mid-February.
The European Central Bank has raised interest rates to record highs over the past year and a half, creating tighter financial conditions across the region that have helped cool inflation from a peak of 10.6% in October 2022 to 2.9% in December. The latest preliminary European zone inflation figures are scheduled to be released on Thursday.
