Eurozone avoids recession but remains stagnant as Germany struggles

In this Thursday, Jan. 5, 2012 file photo, a person is reflected in a puddle alongside the Euro sculpture in front of the European Central Bank in Frankfurt, Germany.
In this Thursday, Jan. 5, 2012 file photo, a person is reflected in a puddle alongside the Euro sculpture in front of the European Central Bank in Frankfurt, Germany. Copyright Michael Probst/AP
By Doloresz Katanich
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The bloc sharing the euro has seen its economy practically motionless in the last year as it continues to stagnate.

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Economic output remained unchanged in the eurozone in the final three months of 2023, and slightly expanded in the EU, confirming the first estimates from Eurostat. 

The eurozone economy’s stagnation follows a 0.1% contraction in the previous quarter, meaning that the bloc has just avoided a recession, essentially avoiding two consecutive quarters of decline in gross domestic product (GDP).

The economy has not shown any sign of life over the last year, contracting or growing by a slight 0.1% since the beginning of 2023.

In a yearly comparison, the numbers also suggest a standstill economy, the seasonally adjusted GDP increased by 0.1% at the end of 2023, following stagnation in the previous three months.

The weak performance is due to staggering domestic demand, in particular in investment, according to a Barclays analysis. The investment bank highlighted that among the top performers, France’s stagnation was a positive surprise compared to the expected contraction, while Italy and Spain, the bloc’s third and fourth biggest economies, showed resilience with 0.2% and 0.6% of growth, respectively.

Meanwhile, Germany's performance kept tumbling with its GDP shrinking by 0.3% on the quarter - and by 0.2% in a yearly comparison.

Looking at the overall European landscape, according to Eurostat, the biggest contraction was in Ireland’s economy, which shrank by -4.8%, followed by Estonia (-3%), and Finland (-1.3%), compared to the previous year's last three months.

The GDP of the European Union expanded by a light 0.1% compared to the previous three months and 0.3% when put side by side with its own performance during the previous year’s last three months.

More and more jobs in Europe

The number of employed people increased by 0.3% in both the euro area and the EU in the fourth quarter of 2023 compared with the previous three months, according to Eurostat’s preliminary estimates. This translates to 169.3 million people having a job in the eurozone.

Employment also expanded by 1.3% in the eurozone and by 1.2% in the EU, compared to last year’s final three months.

The labour market shows every sign of life, the latest figure suggests growth for the two and a half years consecutively.

A mixed picture between EU economies

A few EU countries, separately reporting about their economies, have sent a mixed signal about the European landscape.

Finland's dark moment

Sharing the same currency in the bloc, Finland has been doing particularly poorly. 

The economy, providing 1.7% of the EU's overall GDP, entered a technical recession at the end of the year, as its output dipped during two consecutive quarters; the GDP contracted by 0.4% in the last three months of 2023 compared to the previous quarter, following a drop of 0.9% in the three months to September.

In a yearly comparison, its GDP shrank by 1.3% in the last quarter of 2023, following a 1.2% decline in the previous period, which is the sharpest economic contraction in almost three years.

The Bank of Finland said at the beginning of this year that the country’s GDP is expected to shrink by 0.5% in 2023 and 0.2% this year.

The central bank puts the economy's weakness down to the lagging export markets, but expects those to recover later this year and foresees households' purchasing power improving as inflation is rapidly slowing. An expectation that could be true to the whole eurozone, in short. 

Good news from Netherlands

Driven by strong household consumption, the Netherlands returned to growth by quarterly comparison, as the Dutch economy expanded by 0.3% in the last three months of 2023 following 9 consecutive months in contraction. 

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However, in a yearly comparison, its GDP still shrank by 0.5%, following a decline of 0.8 in the previous quarter, according to the first estimates of the country’s statistical office.

Ups and downs in Romania

The GDP figures in Romania sent mixed signals to the market. The seasonally adjusted output contracted by 0.4% in the last three months in 2023 quarter on quarter, according to the National Institute of Statistics’ preliminary estimates. However, in a yearly comparison, the economy expanded by 2.9%, beating market forecasts.

Hungary back on track

Romania’s neighbour, Hungary, has just climbed back from negative territory. Its yearly GDP stagnated in the last quarter of 2023, following three consecutive periods of contraction.

Compared to the previous quarter, Hungarian GDP also stagnated, after a brief rise of 0.8% preceded by four consecutive quarters of contraction, according to numbers from the Hungarian Central Statistical Office.

Worrying signs in Poland

Poland, the biggest economy in the EU that is not using the euro, has also reported a stagnating economic performance for the same period, compared to the previous quarter, following a 1.1% growth in the previous three months. Year-on-year, the output accelerated from 0.5% to 1% in the last three months of 223.

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Norway is showing the way

According to the latest GDP data, non-EU country Norway’s economy is back on track.

Its output jumped by 1.5% in the last three months of 2023 compared to the previous quarter, following a 0.4% contraction in the period before, according to the Nordic country's statistical office. 

The growth was mainly driven by Norway’s oil and gas sector, following sanctions on Russia. The weakening Norwegian Krone also boosted exports as they rebounded, increasing by 3.3% after a dismal decline of 1.3% in the previous three months. However, domestic demand remains weak.

GDP in Norway’s mainland, which excludes fossil fuels and shipping, expanded by 0.2% on the quarter, mainly driven by the health and finance sectors' good performance.

Compared to the previous year, the overall GDP growth was 0.5% in the last quarter of 2023, following a 1.9% contraction in the previous three months.

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