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The eurozone economy is falling, what are the factors that have influenced it?

2023-12-08 10:43:28Biznes SHKRUAR NGA REDAKSIA VOX

The eurozone economy is falling, what are the factors that have influenced it?

The eurozone economy contracted slightly in the third quarter of 2023, under pressure from changing inventory levels as well as weaker economic sentiment. The third estimate for the eurozone's quarterly gross domestic product (GDP) growth rate for the third quarter of 2023 came on Thursday morning, coming in at -0.1%. That was lower than the second quarter's 0.1%, but in line with analysts' estimates.

The third-quarter estimate for eurozone GDP year-on-year also came in at 0%, a sharp drop from Q3 2022's 0.6%, as well as analysts' estimates of 0.1%. This was the first drop in GDP since the last quarter of 2022 and was further impacted by fixed spending remaining largely flat. Exports fell by 1.1%, while imports also decreased by 1.2%. However, households spent more, with consumption increasing by 0.3%. Public spending also rose by 0.3%, up from 0.2% in the last quarter.

Malta saw the biggest jump in GDP from the second quarter, at 2.4%, followed by Poland at 1.5% and Cyprus at 1.1%. The deepest decline was seen in Ireland, which sank -1.9%, followed by Estonia with -1.3% and Finland with -0.9%. Italy's economy grew by 0.1%, while Spain expanded by 0.3%. However, France's economy fell -0.1%, and Germany followed suit, with a -0.1% drop as well. The Netherlands also saw a -0.2% contraction in Q3 2023.

Ahead of the eurozone GDP release, the EUR/USD pair climbed to around 1.0770, up 0.08%, however, this gain may be short-lived as demand for the US dollar is on the rise, especially now that the eurozone data has come in weaker than expected. However, employment in both the eurozone and the EU rose by 0.2%, compared with 0.1% in the last quarter.

Lithuania and Malta saw the largest employment growth, at 1.4%, followed by Spain at 1.3%. Estonia saw the largest drop in employment, at -0.9%, with the Czech Republic falling -0.7% and Finland also falling -0.6%. However, future inflation indicators and the reactions of the European Central Bank (ECB) and future interest rate decisions will be decisive in determining the GDP numbers for the last quarter of the year.

ECB Board members like Isabel Schnabel have been very vocal about the central bank's need to keep more interest rate hikes as an option in case inflation doesn't return to the 2% target quickly enough. However, with recent inflation reports easing somewhat, this dovish stance may change soon.

S&P Global has also pointed out that it sees the eurozone economy heading for a mild contraction next year, which could mean the ECB could start cutting rates earlier than expected if this downward trend in inflation continues.


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