Eurozone narrowly avoids technical recession
Newsflash: the eurozone has avoided falling into recession, despite Germany’s economy contracting and France stagnating in the last quarter.
GDP across the eurozone, and the wider European Union, was flat in the fourth quarter of 2023, data from Eurostat shows.
That follows the 0.1% contraction in the third quarter, and means Europe has narrowly avoided a technical recession (two negative quarters in a row).
The growth reported in Italy (_0.2%), Spain (+0.6%) and Portugal (+0.8%) this morning will have helped keep the eurozone away from another contraction.
Key events
The eurozone economy “escaped recession by the skin of its teeth” by the end of 2023, says Diego Iscaro, head of Europe economics at S&P Global Market Intelligence
Iscaro also fears thar that eurozone will struggle to grow in the first half of this year, after stagnating in the final quarter of 2023.
He explains:
Declining activity in Germany was offset by stronger than expected growth in Spain, while the French economy stagnated.
The outlook for 2024 continues to be challenging amid faltering demand and increasing geopolitical tensions. The expected fall in inflation should help to support households’ finances, although this positive impact will be at least partly offset by less supportive fiscal conditions. Similarly, we expect labour market conditions to gradually become less positive, although we currently project a modest increase in the unemployment rate this year.
All in all, we think that eurozone activity will remain virtually stagnant during the first half of 2024.
Among the eurozone member states for which data are available so far, Portugal (+0.8%) recorded the highest growth in Q4 compared to Q3, followed by Spain (+0.6%), Belgium and Latvia (both +0.4%).
Declines were recorded in Ireland (-0.7%), Germany and Lithuania (both -0.3%).
The year on year growth rates were positive for six countries and negative for five, Eurostat adds.
Eurozone narrowly avoids technical recession
Newsflash: the eurozone has avoided falling into recession, despite Germany’s economy contracting and France stagnating in the last quarter.
GDP across the eurozone, and the wider European Union, was flat in the fourth quarter of 2023, data from Eurostat shows.
That follows the 0.1% contraction in the third quarter, and means Europe has narrowly avoided a technical recession (two negative quarters in a row).
The growth reported in Italy (_0.2%), Spain (+0.6%) and Portugal (+0.8%) this morning will have helped keep the eurozone away from another contraction.
Nick O’Reilly, restructuring and recovery director at accountancy firm MHA, predicts there will be more large administrations in 2024:
Following the news that England and Wales saw the most company insolvencies since 1993 last year, O’Reilly says:
“Throughout 2023 we saw a steady rise in the number of reported corporate and personal insolvencies which we saw reflected on the ground in our work. This growth has been primarily driven by smaller businesses having difficulty paying back government COVID support leading to an uptick in the number of Creditor’s Voluntary Liquidations.
“However, as we head further into 2024, we are likely to see more large-scale administrations compared to 2022 and 2023, as the impact of high interest rates begins to bite even further. This year is likely to be the busiest 12 months for insolvencies since 1993 as similar challenging conditions to 2023 will prevail — ongoing conflicts in Ukraine and the Middle East, falling house prices, still low levels of consumer confidence — combined with the lack of availability of interest payment holidays. This is highly likely to lead to some high-profile casualties.”
England and Wales see most company insolvencies since 1993
Newsflash: the number of company insolvencies in England and Wales has hit a thirty-year high.
The Insolvency Services there were 25,158 registered company insolvencies in England and Wales in 2023.
This is the highest annual number of company insolvencies since 1993, as firms across the country were hit by high interest rates and the squeeze on consumer spending.
Last year there were 20,577 creditors’ voluntary liquidations (CVLs), in which a company is voluntarily wound up after running out of money, plus 2,827 compulsory liquidations, 1,567 administrations, 185 company voluntary arrangements (CVAs) and two receivership appointments.
One in 186 active companies (at a rate of 53.7 per 10,000 active companies) entered insolvent liquidation in 2023.
So, as there are more companies in existance than 30 years ago, the 2023 rate remained much lower than the peak rate of 94.8 insolvencies per 10,000 active companies during the 2008/09 recession.
Back in the UK, there’s a small pick-up in the number of mortgages being agreed.
The Bank of England reports that 50,500 loans for house purchases were agreed in December, up from 49,300 in November.
And in a boost to borrowers, the ‘effective’ interest rate – the actual interest paid – on newly drawn mortgages fell by 6 basis points to 5.28% in December.
The ‘effective’ interest rate on newly drawn mortgages fell in Dec for the 1st time since Nov 2021 by 6 basis points, to 5.28%. This helped buyer confidence inc’ing net mortgage approvals for house purchases from 49,300 in Nov to 50,500 in Dec 2023https://t.co/J2IoZjuzfH pic.twitter.com/BGm4gdcIAs
— Emma Fildes (@emmafildes) January 30, 2024
This is the first drop since November 2021.
Some better news on mortgage rates from the Bank of England.
“The ‘effective’ interest rate – the actual interest paid – on newly drawn mortgages fell by 6 basis points to 5.28% in December. The first drop since November 2021.”— Shaun Richards (@notayesmansecon) January 30, 2024
The GDP data keeps coming… with Portugal reporting that its economy grew by 0.8% in the last quarter of 2023.
Statistics Portugal adds that GDP grew by 2.2%, year-on-year, in Q4 2023, explaining:
The contribution of domestic demand to the year-on year growth rate of GDP remained high in the fourth quarter, with an acceleration in private consumption and a slowdown in investment.
The contribution of net external demand to the year on-year rate of change of GDP became positive, with Exports of Goods and Services in volume increasing more intensely than Imports.
Germany’s economy remains stuck in “the twilight zone between recession and stagnation”, says Carsten Brzeski, ING’s global head of macro.
Following the news that Germany shrank by 0.3% in October-December, Brzeski argues that the country is probably in a shallow recession:
The year 2023 was the first full year since 2020 in which the German economy contracted (by -0.3% year-on-year). The GDP numbers from previous quarters were revised.
As a result, the German economy has just avoided a technical recession (ie two consecutive quarters of contraction). But with an average quarterly growth rate of 0% QoQ since the second quarter of 2022, the German economy is anything but fast-growing.
The best way to describe the state of the German economy is probably that it is in a shallow recession. In fact, the economy remains stuck in the twilight zone between recession and stagnation.
Italy grows by 0.2%
While Germany and France struggle, Italy has beaten expectations!
Italy’s economy grew by 0.2% in the fourth quarter of last year, statistics body ISTAT reports, beating expectations for no growth in Q4, despite weak domestic demand.
On a year-on-year basis, GDP in the euro zone’s third largest economy was up 0.5%.
Istat reports:
The quarter on quarter change is the result of a decrease of value added in agriculture, forestry and fishing and of an increase in that of both industry and services.
From the demand side, there is a negative contribution by the domestic component (gross of change in inventories) and a positive one by the net export component.
Germany on brink of recession as economy shrinks
Newsflash: Germany’s economy contracted in the final three months of last year, putting Europe’s largest economy on the brink of recession.
Statistics body Destatis reports that German GDP shrank by 0.3% in Q4 2023, in line with forecasts.
That follows flat GDP in both the second and third quarters of last year (Q3 has been revised up from a 0.1% fall).
Destatis says:
After the German economy more or less stagnated in the first three quarters, economic performance decreased in the fourth quarter of 2023.
Compared with the previous quarter, there was a marked decline, in particular, in gross fixed capital formation in construction and in machinery and equipment after price, seasonal and calendar adjustment
*(DE) GERMANY Q4 PRELIMINARY GDP Q/Q: -0.3% V -0.3%E; Y/Y: -0.2% V -0.2%E (avoids technical recession due to Q3 revision)
– Prior Q3 GDP QoQ revised higher from -0.1% to 0.0%
(More at https://t.co/GHDbiJTtAe)— TradeTheNews.com (@Trade_The_News) January 30, 2024
Charlotte de Montpellier, ING’s senior economist for France and Switzerland, says there are “few indicators” that suggest the French economy will pick up strongly in the first quarter of 2024.
In fact, we expect stagnation to persist. We expect the French economy to recover only gradually in the course of 2024, with growth picking up slightly in the second quarter and then accelerating in the second half of the year.
This recovery should take place thanks to more dynamic consumption against a backdrop of falling inflation and slightly improved purchasing power. Added to this will be the impact of a tight labour market. We expect growth to be even weaker in 2024 than in 2023, at 0.5% compared to 0.8%.
Back in the UK, the slowdown of grocery price inflation has stalled this month, according to data from data provider Kantar.
Kantar reports that supermarket prices were 6.8% more expensive than a year ago in January, slightly lower than the 6.9% drop in the year to December.
The Czech economy grew by 0.2% in the fourth quarter versus the previous three months.
That’s in line with expectations, and shows a return to growth after Czech GDP shrank by 0,6% in Q3.
On a year-on-year basis, the economy fell 0.2% in real terms, according to a flash estimate by the Czech Statistics Office.
Austria escapes recession
Over in Austria, the “downward trend in the domestic economy observed last year” was halted in the final few months of 2023, statistics body WIFO says.
WIFO reports that Austria’s economy grew by 0.2% in Q4 2023, better than the 0.2% contraction expected.
That follows two quarters of negative growth – -1.1% in Q2, and 0.5% in Q3 – meaning Austria has escaped a technical recession.
WIFO reports that Austria’s industrial economy expanded by 0.4% in Q4, while the services sector stagnated and construction shrank by 1%.
For 2023 as a whole, Austria’s economy shrank by 0.7%.
Spain’s economy minister, Carlos Cuerpo, has said the pick-up of growth in Q4 2023 is a good starting point for this year.
Reuters reports:
Economy Minister Carlos Cuerpo said that trend was expected to continue into 2024.
The fourth-quarter reading “provides a good starting point to meet our target of 2% growth in 2024,” Cuerpo said in a recorded video message.
Spain grows by 0.6%
Newsflash: Spain’s economy grew at a faster pace in the final quarter of 2024.
Spanish GDP expanded by 0.6% in the October-December quarter, up from growth of 0.4% in July-September.
That’s faster than the 0.2% growth forecast by economist, which may mean today’s eurozone GDP report is a little stronger than expected….
On an annual basis, Spain’s fourth-quarter economic output expanded by 2%, beating the average estimate of 1.5% in a Reuters poll.
🇪🇸 Spain Spanish GDP (QoQ) (Q4) $EUR
Actual: 0.6% 🟢
Expected: 0.2%
Previous: 0.4%— PiQ (@PiQSuite) January 30, 2024
🇪🇸 Spain Spanish GDP (YoY) (Q4) $EUR
Actual: 2.0% 🟢
Expected: 1.5%
Previous: 1.9%— PiQ (@PiQSuite) January 30, 2024
Here’s a chart showing French GDP over the last three years:
