2023.01.3111:39:00UTC+00Eurozone Economy Avoids Contraction In Q4

Euro area narrowly escaped a shrinkage in the fourth quarter, but the growth remained modest on weaker consumer spending amid high inflation.

Gross domestic product grew 0.1 percent sequentially after rising 0.3 percent in the third quarter, preliminary flash estimates from Eurostat showed on Tuesday. Economists had forecast the single currency bloc to shrink 0.1 percent.

On a yearly basis, the economy grew at a slower pace of 1.9 percent, following the third quarter's 2.3 percent growth. Nonetheless, the rate was slightly above economists' forecast of 1.8 percent.

The breakdown of GDP is currently unavailable. But the national data indicated that household consumption was the major drag on growth.

The EU27 GDP remained unchanged over the quarter and expanded 1.8 percent from the last year.

According to the first estimate of annual growth for 2022, the euro area expanded 3.5 percent and the EU27 grew 3.6 percent.

Earlier in the day, the International Monetary Fund said growth in Eurozone will bottom out at 0.7 percent this year before improving to 1.6 percent in 2024.

National data published so far showed that Germany and Italy contracted 0.2 percent and 0.1 percent, respectively. By contrast, France grew 0.1 percent and Spain expanded 0.2 percent.

The 20-nation currency bloc is set to fall into recession in the first half of this year as the effects of the European Central Bank's policy tightening intensify, households struggle with the cost of living crisis and external demand remains sluggish, Andrew Kenningham, an economist at Capital Economics, said.

However, this will not put the ECB off its plans to hike rates further, including by 50 basis points on Thursday, the economist added.

Citing the evidence of contracting domestic demand, ING economist Bert Colijn said after a period of strong post-pandemic spending, consumers are now adjusting their spending to the purchasing power loss they have incurred in 2022.

"Doubts about continued strong net export growth are also justified in a weak global environment, and investment is set to come under pressure from higher interest rates as borrowing data suggests," the economist said.

"This means that an economy performing sluggishly, at best, is expected for early 2023 and a dip below zero cannot be ruled out for the first quarter."