The statistical revision is technical, but the symbol is heavy: the euro zone has officially entered recession. According to the publication of the European statistical institute Eurostat on Thursday June 8, the gross domestic product (GDP) of the twenty countries of the single currency fell by 0.1% in the first quarter, after a drop of the same magnitude the previous quarter.
Two negative quarters in a row meet the definition of a recession. Behind these figures are two major trends: everywhere in Europe, consumption is falling quite heavily, due to soaring inflation and rising interest rates; Germany, more exposed to the war in Ukraine, is one of the most affected countries.
On 16th May Eurostat had estimated GDP in the euro zone in the first quarter at very weak growth of 0.1%. Its correction to -0.1%, published on Thursday, is not exceptional, but it officially tips the accounts into the red. “The eurozone economy has stagnated over the past two quarters and we expect GDP to contract further in the second quarter, because the effects of monetary tightening [la hausse des taux d’intérêt] will continue to be felt”notes Andrew Kenningham of Capital Economics.
The recession comes above all from the fall in household consumption, down 1% and 0.3% in the last two quarters. The surge in prices, first of energy, then of food, has permanently weakened purchasing power.
Until now, if growth had officially resisted, it was essentially a sham: imports fell (-2.5% and -1.3% in the last two quarters), improving mechanically the trade balance of the euro zone. However, this decline above all illustrates the softness of the European economy.
Germany down sharply
At the geographical level, the economic decline comes above all from Germany, which accounts for almost a third of the GDP of the euro zone. The country, which was particularly dependent on Russian gas, is hit hard by the war in Ukraine. Its highly developed industrial sector is heavily penalized by expensive energy – even if the decline in gas and oil prices in recent months has loosened the vice. The automobile, with a difficult transition to electrification, is also going through a severe crisis. In this country, the recession is now very clear: -0.5% in the fourth quarter of 2022, -0.3% in the first quarter.
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