The euro zone is struggling to avoid a second consecutive quarterly dip in gross domestic product (GDP) after a German contraction and a flatlining of France’s economy offset a rebound in Spanish and Italian growth in the final quarter of 2023.
French GDP was stable in the three months to December, in line with economists’ forecasts in a Reuters poll. It follows a similar stagnation in the third quarter, which was revised up on Tuesday from an earlier estimate of a 0.1 per cent contraction by Insee, the French statistics agency.
The German economy shrank 0.3 per cent in the period, dragged down by falling investment in construction, machinery and equipment, the country’s statistical agency said, confirming its initial estimate earlier this month.
Italy’s economy, in contrast, provided a boost after it expanded 0.2 per cent in the period thanks to stronger output in industry and services that offset weaker domestic demand. That was up from 0.1 per cent growth in the previous quarter and was stronger than the stagnation forecast in a Reuters poll.
The Spanish economy also accelerated faster than expected by economists with quarterly growth of 0.6 per cent, its strongest expansion of the year, thanks to rising domestic demand.
Spain’s statistics office also said higher electricity prices, reflecting a phasing out of tax breaks, caused inflation to unexpectedly pick up from 3.3 per cent in December in January to 3.5 per cent. Economists had expected a slowdown to 3.1 per cent.
The overall euro zone economy is expected to have contracted 0.1 per cent in the fourth quarter, after a similar decline in the previous three months. GDP for the bloc will be announced later on Tuesday.
‘To blame the lowest paid for challenges in our economy is cheap’
Later this week, investors will be watching to see if inflation across the bloc dips as expected to 2.8 per cent in January from 2.9 per cent a month ago, when price data is released on Thursday.
The figures will be a key indicator of how close the European Central Bank is to cutting interest rates.
Economists are expecting the euro zone economy to pick up slightly this year as falling inflation and continued wage growth boosts the spending power of consumers.
The strong labour market, with unemployment hitting a record low of 6.4 per cent in November, should also support demand.
[ Euro zone heading for another downturn, warns ECB vice-presidentOpens in new window ]
However, governments are withdrawing many of the energy and food subsidies they introduced to cushion the impact of the recent surge in the cost of living that followed Russia’s full-scale invasion of Ukraine almost two years ago.
The figures published on Tuesday showed Spain’s economy grew 2.5 per cent last year, while France expanded 0.9 per cent and Italy grew 0.7 per cent. Germany’s economy, however, contracted 0.3 per cent over the year.
The euro zone has been left trailing by the US, which last week established it was the world’s fastest-growing advanced economy in 2023 with annual growth of 3.1 per cent.
China’s government recently estimated its economy grew 5.2 per cent last year. – Copyright The Financial Times Limited 2024
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