why it matters
Stubbornly high inflation plunged many consumers across the continent into a cost-of-living crisis, prompting them to refrain from spending significantly during this period. Eurozone spending fell 0.3% in the first three months of the year after falling 1% in the previous quarter. Imports also fell sharply as demand for goods and services contracted.
Public spending, which surged during pandemic lockdowns, also fell sharply, contracting 1.6% year-on-year in the first quarter.
The downturn mirrors a recession in Germany, the eurozone’s largest economy, which last month said data for the first three months of the year showed its economy slipping into recession amid an energy price shock. reported that it was shown to be
But Thursday’s report found mixed results across the region, with southern European countries including Spain, Italy and Portugal all posting strong growth, while Germany and the Netherlands contracted, and France grew only modestly. It has been shown.
The European economy as a whole has picked up pace slightly since the spring, with the European Commission raising its growth forecast to 1.1% this year and 1.6% in 2024.
“Looking ahead, we expect consumer spending to pick up slightly as inflation eases, and government spending to pick up,” Klaus Bistesen, chief eurozone economist at Pantheon Macroeconomics, said in a note. “However, this boost is likely to be offset by continued declines in investment and further reductions in inventories reflecting tighter credit standards.”
Background
The government wanted to avoid a recession by spending extravagantly over the winter to shield households and businesses from rising energy and food prices exacerbated by Russia’s war in Ukraine. Countries across Europe quickly built up energy stockpiles, and mild winters and massive conservation efforts helped avert the worst.
The strategy helped keep energy prices down, and inflation in the euro zone’s largest economy fell from a record high. Annual inflation in May was 6.1%, the lowest for the euro area in more than a year.
But prices for food and various services continue to rise at an uncomfortable pace, increasing the likelihood that the European Central Bank will continue to raise rates at its upcoming meetings. The International Monetary Fund has warned that the main challenge for European policymakers this year will be to contain inflation without triggering a deep recession.
what’s next
Analysts said the economic downturn was mild and unlikely to weigh on the economic recovery from the pandemic, but it still suggested growth would remain sluggish for the rest of the year.
“It is difficult to argue that this is a recessionary environment,” ING Bank said in a memo to clients. “That said, the economic slump marks a clear departure from the recent boom following the pandemic.”
The European Central Bank’s next monetary policy meeting is on June 15th.
