• The preliminary Eurostat data, released Tuesday, showed that the euro zone experienced 0.1% growth in the fourth quarter.
  • According to Reuters, economists had predicted a contraction of 0.1% over the same time period.
  • The euro zone’s economic performance was somewhat improved by the cooling of energy prices in the second half 2022.

As the ECB contemplates next steps, the latest growth figures for euro zone are available.
Nurphoto

On Tuesday, the euro zone beat all expectations by posting positive growth for the fourth quarter of 2022. This also reduces fears of a regional recession.

The preliminary Eurostat data, released Tuesday, showed that the euro area grew 0.1% during the fourth quarter. According to Reuters, economists had predicted a 0.1% contraction in the same period.

These latest figures are coming after the euro zone posted a 0.3% increase in GDP for the third quarter last year.

As a result of long-standing supply chains bottlenecks and high food and energy prices, the region has been in significant turmoil since Russia invaded Ukraine. Economists predicted last year that the region of 20 members could soon enter an economic recession.

The euro zone’s economic performance was somewhat improved by the cooling of energy prices in the second half 2022.

According to preliminary data, the euro zone will have experienced 1.9% growth in the fourth quarter compared to 2021.

“The advanced euro zone GDP report shows economic growth slowed again during the fourth quarter, but didn’t drop outright, defying message from the business survey,” Melanie Debono (senior Europe economist at Pantheon Macroeconomics) stated in an email to clients.

Germany was surprised at the country breakdown level. Analysts now expect Berlin to enter recession, as the largest European economy shrank by 0.2% in its last quarter.

Salomon Fiedler of Berenberg said Monday that Germany has entered a short and shallow recession in the fourth quarter. This will continue through the first quarter, before the economy stabilizes in the second quarter.

Italy, third-largest economy in the region, reported 0.1% decline in fourth quarter. Some of the most strong links to Russian gas were found in Berlin and Rome.

“If we take today’s data as a whole, it is likely that the euro zone avoided a technical recession in this quarter. This will encourage the ECB’s steep tightening path in order to fight inflation,” Debono of Pantheon Macroeconomics stated.

On Thursday, the ECB will meet to decide its next monetary policy steps. According to Factset and Reuters, economists expect that the bank will approve a 50-basis point increase in interest rates. This would bring its main rate up to 2.5%.

Market participants will be paying close attention to Christine Lagarde, President of the ECB, for information on any rate hikes that might occur in the next few months.

Economists believe that the euro area is still in danger of entering a recession in the next year.

“Looking ahead, the euro-zone (excluding Ireland), will fall into recession as the effects from the ECB’s policy tightening intensify and households struggle with the cost to living crisis while external demand remains sluggish,” Andrew Kenningham of Capital Economics, stated in an email Tuesday.

“But this won’t stop the ECB from increasing rates further, including by 50 basis point on Thursday,” he said. He added.