As of: January 30, 2024, 8:52 p.m
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Polished euro coins on a table: The economic situation in the euro area is stagnating.
© Christian Charisius / dpa
The weakness of Germany as the largest European economy also has an impact on the entire euro zone.
The fact that it was spared from a recession is also thanks to two southern states.
Brussels/Berlin - Italy and Spain have saved the euro zone from recession despite the weakness of their largest economy, Germany.
The gross domestic product (GDP) of the monetary union stagnated from October to December compared to the previous quarter, as the statistics office Eurostat announced on Tuesday.
The economy shrank in the summer - by 0.1 percent.
If the decline had continued in the final quarter, a technical recession would have occurred.
Economists surveyed by the Reuters news agency had expected a further decline of 0.1 percent.
Germany in particular prevented growth: Europe's largest economy shrank by 0.3 percent at the end of the year because significantly less was invested in buildings and equipment such as machines.
Only Ireland (-0.7 percent) performed even worse according to the data available from the member states so far.
Other large euro countries fared much better: the economy in France stagnated, while Italy achieved growth of 0.2 percent and Spain even of 0.6 percent.
“The Iberian Peninsula is the European powerhouse,” said VP Bank chief economist Thomas Gitzel, as Portugal grew even more strongly than its Spanish neighbor at 0.8 percent.
Economic gaps are likely to widen
Experts predict that the economic gap between the euro countries is likely to become even greater.
“The southern European countries will benefit from another good tourism season; vacations are also highly preferred by many consumers this year,” said Gitzel.
“The German economy, with its high export share, will continue to lag behind as long as the global economy remains weak.”
Even though the recession was narrowly avoided, the course is still far from being set for an upswing.
The mood in the euro zone economy deteriorated slightly in January: the barometer for the business climate fell by 0.1 points to 96.2 points in January, according to data from the EU Commission.
The mood brightened slightly in industry and among service providers.
However, there was a slight decline among consumers, while the business climate in the construction sector, which was hit by the European Central Bank's (ECB) high-interest rate policy, deteriorated significantly.
ECB key interest rate decision is eagerly awaited
“In view of the continued high inflation, the ECB will probably only lower its key interest rates from the summer onwards, which is unlikely to have a positive effect on the economy until 2025,” said Commerzbank economist Christoph Weil.
China is also likely to fail as an economic driver given the crisis in the local real estate market.
“There is therefore little hope that exports will stimulate growth in the euro area,” said Weil.
According to ECB President Christine Lagarde, the weak phase is likely to continue in the short term.
However, the euro watchdogs recently left it open when the interest rate turnaround would be implemented.
The stock market estimates the probability at 80 percent that the Euro Central Bank will cut interest rates again for the first time in April.
Such a move in June is even considered a safe bet with a probability of 100 percent.
Lower interest rates make loans cheaper, which could stimulate the economy.
Germany in a “twilight state”
Germany in particular can use fresh impulses.
According to the Ifo Institute's forecast, economic output is likely to fall by 0.2 percent from January to March.
“This would put the German economy in recession,” said Ifo economics chief Timo Wollmershäuser.
In almost all industries, companies complained about falling demand, while the large order cushions from the Corona period had melted away and high interest rates were slowing them down.
“In addition, the economy is burdened by a number of special factors,” said Wollmershäuser.
These included the high level of sickness, the strikes at Deutsche Bahn and the exceptionally cold and snowy January.
The Ifo business climate index signaled an accelerated decline at the start of the year: the barometer slipped in January to its worst value since May 2020.
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“It currently looks as if the German economy will not quickly emerge from the twilight state between recession and stagnation,” said ING chief economist Carsten Brzeski.
In 2023 as a whole, German GDP fell by 0.3 percent.
The trade union-affiliated IMK Institute expects another minus of this amount for the current year.
“There is no trend reversal in sight,” said its scientific director Sebastian Dullien.
(Reuters, lf)