The Eurozone has experienced two-quarters of negative growth, signaling that 20 member states have entered an economic recession.
- The Eurozone is a currency union known for sharing the euro as the primary currency and sharing policies under the Economic and Monetary Union.
- Eurostat reported on Thursday that gross domestic product had decreased -0.1% in the first quarter, entering a technical recession following declines in the last three months of 2022.
- The announcement was a revision, with Eurostat previously holding that GDP had flatlined in the first quarter but was curbed by Germany and Ireland adjusting their growth figures and offsetting notable gains.
- The announcement casts a gloomy financial outlook for the coming months, leading to analysts speculating that the economies of Europe will further contract throughout the year.
Why It’s Important
Europe has not shown the economic resilience that the U.S. has in the aftermath of the COVID-19 pandemic. While the U.S. economy has grown 5.4% in that time, Europe has only grown 2.2%. Productivity is down, inflation has run hotter, and consumer spending is down. Multiple individual economies have buckled under pressure. Even as France, Italy, and Spain continue growing, the Eurozone is contracting under duress.
“News that GDP contracted in the first quarter, after all, means that the Eurozone has already fallen into a technical recession. We suspect that the economy will contract further over the rest of this year,” says Capital Economics economist Andrew Kenningham.
The most significant factor has been the ongoing war in Ukraine, which sparked a continent-wide energy crisis over the winter as countries scrambled to solidify their energy infrastructure with limited access to Russian oil and gas. The stress of the war has also limited trade and stretched supply chains.
Some economists expect the next quarterly report to show growth resuming, but such growth will be relatively weak. The Organization for Economic Cooperation and Development was already predicting that Eurozone’s economic growth to be half of the U.S.’s at 0.9%, The Wall Street Journal reports.
As we previously reported, the U.S. is expected to enter into a recession in the coming months as the effects of high-interest rates take their toll and slowly lower the current 4.9% inflation rate to a manageable 2%. Analysts continue to hope that the U.S.’s economic resiliency, strong job market, and high consumer spending may result in a soft landing and minimal damage.