2024-02-14 14:04:00
This is a sigh of relief for the countries of the euro zone. The European economy narrowly escaped recession in 2023. Over the year as a whole, gross domestic product (GDP) growth increased by 0.5% in line with the latest estimate according to figures published by Eurostat this Wednesday, February 14. At the end of the year, growth stood still at 0% compared to -0.1% in the previous quarter according to seasonally adjusted data (CVS).
And the OECD’s growth forecasts are not optimistic with 0.6% growth in 2024. “The European economy has experienced serious difficulties. She hasn’t believed for several months. That’s a pretty low number.”declared to The Tribune, Charlotte de Montpellier, economist at ING. “But considering the scale of the shock, it’s not that dramatic. Job creation remains strong despite the stagnation of activity,” she adds.
In contrast, in the United States, the American economy is in excellent health. The latest indicators surprised most economists. GDP growth in Q4 jumped to an annualized 3.1% compared to 2.9% in the previous quarter. Job creation has also reaccelerated. As for the business climate and household confidence, the indicators are green. “It is rare for the US economy to be so close to these objectives which define the Fed’s dual mandate. The scenario of a relapse into recession in the short term has completely disappeared from the radar”, explained ODDO BHF economist Bruno Cavalier in a recent note. Between the United States and Europe, the gap risks widening. “There is an extremely strong disconnect between the euro zone and the United States,” alert Charlotte de Montpellier.
Global growth: the disconnect between Europe and the United States will increase in 2024
Southern Europe, driving force of the euro zone
In detail, long considered the dunces of the euro zone, several countries in southern Europe have done well. This is for example the case of Spain which displays a growth rate of 2.5 % over the year 2023. Quarterly, Spanish GDP growth oscillated between 0.4% and 0.6%. After paying a heavy price for the pandemic, the engines of the Iberian economy have rebounded strongly. “The return of non-European tourists has boosted activity in Spain”said Charlotte from Montpellier.
Further west, Portugal also drove growth in the euro zone with GDP at 2.2% in 2023. On a quarterly basis, activity recorded a trough in the third quarter. But the Portuguese economy showed favorable performances in the first quarter (1.5%) and at the end of the year (0.8%). As a result, the growth outcomes for 2024 are largely favorable for Lisbon.
How Portugal became the good student of the European Union
France and Italy are standing still
As for France, GDP growth stagnated for three quarters out of four in 2024. Only the second quarter saw positive growth at 0.7%. Hit hard by inflation, demand, the traditional engine of the French economy, is stalling. Households have had to tighten their belts for their daily consumption spending.
As for businesses, the tightening of financial conditions has put a stop to investments. The government should soon revise its growth forecast for 2024, currently estimated at 1.4% compared to 0.6% for the OECD. For its part, INSEE expects a sluggish recovery in activity in the first half of the year, like the Banque de France with GDP between 0.1% and 0.2%.
Growth: INSEE expects a sluggish recovery of the economy in the first half
In Italy, activity is mired in sluggish growth. Apart from a favorable first quarter, GDP growth oscillated between -0.3% and 0.2% over the rest of the year. The Italian economy had rebounded well following the health crisis, but it remains marked by sluggish productivity and the aging of its population.
Germany on the brink of the precipice
For its part, Germany continued to suffer from the effects of the war in Ukraine in 2023. The recession hit the euro zone’s largest economy hard. Activity ends the year 2023 in decline according to the latest figures from Eurostat. “Germany has become the red lantern in the euro zone”, summarizes Charlotte Montpellier. Given the weight of industry in GDP and its dependence on fossil fuels, the economy across the Rhine paid a high price for Russia’s entry into the war in Ukraine. “The price shock first affected industrial companies. Germany was particularly vulnerable because it relied heavily on cheap energy.adds the ING economist.
Added to this are the difficulties of the automobile industry lacking opportunities in China. Beijing intends to strengthen its place in Europe on the electricity market. Bad news for German industry, which is still very focused on thermal engines despite the urgent need for the ecological transition. In terms of public finances, the more restrictive budgetary policy risks weighing on activity. “This will accentuate Germany’s difficulties,” predicts Charlotte de Montpellier. “The German economy is in a tunnel. There are a few strikes, the Suez Canal problems are affecting German industry. Germany will continue to underperform in the coming months.”
In the midst of an economic slump, Germany’s industrial production is collapsing
The ECB expected at the turning point
After several unprecedented rate increases, the European Central Bank (ECB) is expected to turn the corner. The brake on prices in Germany in January could encourage central bankers to lower rates in the spring. But nothing is certain. “At the ECB, the scenario of a reduction in key rates has made some progress in recent weeks, but before reaching a broad consensus within the Council, we will have to wait several months. Monetary easing is looming for mid-year and should be quite gradual », explains Bruno Cavalier. For the moment, the latest interventions by President Christine Lagarde show that the Frankfurt institution is still waiting and waiting.
Markets were recently betting on a rapid drop in rates. But this hypothesis is not very credible in the eyes of many economists. At the last meeting of the central banks of the monetary union, “the governors did not talk about lowering rates”says an observer specializing in monetary issues. “There are two risks. If the ECB lowers the pressure too soon, we risk letting go of the 2% target. And if it acts too late, it risks weighing too much on the activity”, continues this source. Suffice it to say that the ECB is on a razor’s edge.
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