After progress revisions in Germany and Eire, the euro zone falls into recession

The German economy fell into recession in the first quarter.

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The euro zone slipped into recession in the first quarter of this year and economists are not optimistic about the coming months.

The bloc of 20 reported a -0.1% gross domestic product for the first quarter, according to revised estimates from the region’s statistics office, Eurostat, released on Thursday.

In a first reading, the agency said the eurozone had grown by 0.1% in the first three months of the year. This statement was revised downwards after Germany also reduced its growth figures in the same period and effectively slipped into a recession. Ireland also corrected its growth rate downwards and is now down almost 5%.

Before the weak performance from January to March, the euro zone also contracted by 0.1% in the last quarter of 2022. The two consecutive quarters of negative GDP development have also dragged the entire region into a technical recession.

“The news that GDP contracted in the first quarter means that the euro zone is already in a technical recession. We suspect the economy will continue to contract later this year,” said Andrew Kenningham, chief economist for Europe at Capital Economics. said in a note on Thursday.

Ireland, the Netherlands, Germany and Greece are among the euro area economies that posted a quarter-on-quarter economic contraction in the first quarter.

Household consumption fell by 0.3% in the first quarter, reflecting the pressure on consumers from higher prices.

Claus Vistesen of Pantheon Macroeconomics said in a note that the eurozone is unlikely to see much growth in the coming months as he expects investment to slow down.

The weak economic environment also poses a challenge for the European Central Bank, which has been pursuing a restrictive course for the past twelve months and most recently set its key interest rate at 3.25%. The central bank meets next week and market participants have priced in another 25 basis point rate hike.

Poor economic performance could limit the ECB’s ability to keep raising interest rates to fight inflation. However, ECB officials have previously suggested that cutting prices is more important than preventing an economic downturn.

Euro-zone bond yields remained sharply higher on Thursday following the release of the data, as several market participants expect further monetary tightening.

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