Economy in the euro area sputters

The economy in the euro area is stagnating. Gross domestic product fell slightly in the winter half-year, by 0.1 percent in both the final quarter of 2022 and the first quarter of 2023. Private consumption in particular is weakening.

Economic output in the euro zone is also unlikely to grow dynamically in the further course of the year. Current leading indicators show a mixed picture for the euro zone. Although consumer confidence has recovered from the sharp drop at the start of the war in Ukraine, a large proportion of consumers remain pessimistic about the future. Purchasing managers’ indices recovered much more clearly around the turn of the year, but the situation clouded over again, particularly in the manufacturing sector.   After a weak first half of 2023, the euro zone economy will only slowly pick up speed. Higher interest rates and high core inflation and the resulting fall in real wages are likely to continue to weigh on the economic recovery. By contrast, the robust labor market is providing support.   Exports from the euro area will probably be subdued. Demand from the USA, Japan and South Korea is not expected to be strong. China is also expected to provide only limited stimulus. Exports of goods and services to North America and the wider Asian region will not significantly pick up again until 2024.

The ECB continues to resolutely pursue its course of fighting inflation. At least one further 25 bp rate hike is expected this year.   With household real incomes rising only gradually and interest rates rising, the euro zone will go through a weak phase in the current year 2023, but will recover over 2024 at slightly increasing rates. Thus, economic growth of 0.3 percent is expected this year and 0.9 percent next year.  


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