The statistical review is technical, but the symbol heavy: the eurozone has officially entered recession. And according to what was published by the European Statistical Institute Eurostat on Thursday, June 8, Gross domestic product (GDP) for the 20 single currency countries fell 0.1% in the first quarter, after a similar-sized drop in the previous quarter.
Two consecutive negative quarters meet the definition of a recession. Behind these numbers are two main trends: Everywhere in Europe, consumption is falling very sharply, due to rising inflation and rising interest rates. Germany, most exposed to the war in Ukraine, is one of the hardest hit countries.
On May 16, Eurostat estimated the eurozone’s GDP in the first quarter at a very weak growth of 0.1%. Its correction to -0.1%, published on Thursday, is not exceptional, but it officially sends the calculations into the red. “The eurozone economy has been in recession for the past two quarters and we expect GDP to contract further in the second quarter, due to the effects of monetary policy tightening. [la hausse des taux d’intérêt] It will continue to be feltnotes Andrew Kenningham of Capital Economics.
The recession comes above all from lower household consumption, which fell by 1% and 0.3% in the past two quarters. The sharp rise in prices, first for energy and then for food, has permanently eroded purchasing power.
So far, if growth has officially resisted, it has been fundamentally phony: imports fell (-2.5% and -1.3% in the last two quarters), mechanically improving the eurozone’s trade balance. However, this decline above all illustrates the softness of the European economy.
Germany is falling sharply
At the geographical level, the economic downturn comes primarily from Germany, which accounts for nearly a third of the eurozone’s GDP. The country, which was particularly dependent on Russian gas, was hit hard by the war in Ukraine. Its highly developed industrial sector is suffering badly from high energy prices – even if lower gas and oil prices in recent months have eased the vice. The car, which is going through a difficult transition towards electrification, is going through a sharp crisis. In this country, recession is now very evident: -0.5% in the fourth quarter of 2022, -0.3% in the first quarter.
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