The latest growth numbers for the Eurozone are out as the ECB ponders what to do next.
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The euro zone beat expectations on Tuesday by posting positive growth in the final quarter of 2022 and easing fears of a possible regional recession.
Preliminary Eurostat data released on Tuesday showed that the euro zone grew 0.1% in the fourth quarter. Economists had pointed to a 0.1% decline over the same period, according to Reuters.
The latest figures come after the euro zone reported GDP growth of 0.3% for the third quarter of last year.
The region came under significant pressure following the Russian invasion of Ukraine, as high food and energy costs exacerbated long-standing supply chain bottlenecks. Last year, economists warned that the region of 20 could be on the verge of an economic recession.
Energy prices cooled towards the end of 2022, bringing some relief to the eurozone’s overall economic performance.
The euro zone is expected to have grown by 1.9% in the fourth quarter compared to the same period in 2021, according to preliminary data.
“The Eurozone GDP Flash Report shows that economic growth slowed again in the fourth quarter but did not fully reverse, contradicting the message from business surveys,” said Melanie Debono, senior Europe economist at Pantheon Macroeconomics, in an email to customers.
At country level, however, Germany surprised negatively. Europe’s largest economy shrank 0.2% in the last quarter of 2022 and analysts now expect Berlin to slip into recession.
“Germany likely entered a shallow and short recession in the fourth quarter, which will last through the first quarter before the economy stabilizes in the second quarter (of this year),” Salomon Fiedler, an economist at Berenberg, said in a statement on Monday.
Italy, the region’s third largest economy, also reported negative growth – down 0.1% in the fourth quarter. Rome and Berlin had some of the strongest connections to Russian gas.
“Taking today’s data at face value means the eurozone probably just avoided entering a technical recession this quarter. This will encourage the ECB to continue its steep tightening path to fight inflation,” said Debono of Pantheon Macroeconomics.
The ECB will meet on Thursday and determine its next monetary policy steps. Economists polled by Reuters and Factset predict the bank will agree to raise interest rates by 50 basis points to 2.5%.
Market participants will be listening carefully to ECB President Christine Lagarde for clues as to how many more rate hikes may occur in the coming months.
Some economists argue that the euro zone will enter a recession later this year.
“Looking ahead, we believe the Eurozone (excluding Ireland) will fall into recession in the first half of this year as the impact of ECB policy tightening intensifies, households grapple with the cost of living crisis and the External demand remains sluggish.” Andrew Kenningham, chief economist for Europe at Capital Economics, said in an email on Tuesday.
“But that won’t deter the ECB from plans to hike rates further, including by 50 basis points on Thursday.” he added.
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