The euro zone in recession this winter, weighed down by Germany

The euro zone entered recession this winter, penalized by the decline in consumption under the effect of price increases and by the difficulties of German industry, according to data published Thursday by Eurostat. The GDP of the 20 countries sharing the single currency fell by 0.1% between January and March, after a fall of the same magnitude from October to December, figures significantly revised downwards compared to previous estimates.

The European Institute of Statistics has so far reported growth of 0.1% in the first quarter after stagnation (0%) at the end of last year. The downward revision is largely explained by the recent lowering of the figures from Germany. The first European economy announced at the end of May that it had entered recession, due to a drop in activity of its industrial companies.

The new figures darken the outlook for the zone for the year as a whole. The European Commission was forecasting growth of 1.1% in mid-May in 2023. The figure now seems “optimistic“Said Charlotte de Montpellier, economist for ING bank, to AFP. It provides only 0.5% over the full year. “Since spring, all data has been bad“, she underlines, pointing in particular to German industrial production and new orders. According to her, “the European economy is in a phase of stagnation and has struggled to get through the winter due to the energy shock“.

Although gas and oil prices have fallen in recent months, last year’s price spike had a significant impact on household confidence. Inflation remains high, at 6.1% in May, despite a decline, and price increases are now affecting food products, manufactured goods and services. Household consumption expenditure fell by 0.3% in the first quarter, after having already fallen by 1% over the previous three months, detailed Eurostat on Thursday.

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No rebound in sight

The European economy is also affected by the rise in interest rates by the European Central Bank (ECB), which reduces the demand for credit and slows down investments, particularly in real estate, leading to a drop in activity in construction. The slowdown observed in the United States and the weaker-than-expected recovery in China are also weighing on exports.

“We expect the economy to contract further for the rest of the year“, commented Andrew Kenningham, expert of Capital Economics, who points “the effects of monetary policy tighteningof the ECB, forced to fight against inflation. “Unfortunately there are not so many elements that can give hope for a rebound in the coming months.“, also believes Charlotte de Montpellier.

German and European industry has beendestabilizedby a series of shocks: supply chain problems, energy surge, global slowdown. But its difficulties are also structural. It suffers from no longer having access to Russian gas, deliveries having been interrupted in the context of the war in Ukraine. It also suffers from its dependence on Chinese suppliers in booming renewable energies. In the automobile sector, Chinese manufacturers are taking advantage of electrification to overtake their German competitors.

Germany saw its GDP fall by 0.5% in the last quarter of 2022, then by 0.3% from January to March. She finds herself withan activity currently below its pre-pandemic level in 2019, while the other countries (in the euro zone) are much better placed. The old star of the European economy no longer shines“, emphasizes Ms. de Montpellier.

Conversely, Spain and Italy grew by 0.5 and 0.6% respectively in the first quarter, with the less industrialized southern European countries taking full advantage of the increase in tourism after the end of restrictions that paralyzed the sector during the health crisis. For its part, France maintained moderate growth (0.2%) in the first quarter.