"Euro Zone Economy Contracts Slightly in Q3, Fueling Concerns of a Technical Recession; Employment Defies Trend with a Quarter-on-Quarter Rise"

 

In Brussels on November 14th, the Eurozone economy saw a slight contraction in the third quarter, as confirmed by a new estimate on Tuesday. This emphasizes concerns about a potential technical recession if the fourth quarter continues to display similar weakness. Notably, despite the economic downturn, employment in the Eurozone experienced an unexpected rise.

Eurostat, the European Union's statistics office, reaffirmed its October 31st estimate, indicating that the gross domestic product (GDP) in the 20 Eurozone countries declined by 0.1% quarter-on-quarter from July to September, with a marginal 0.1% year-on-year increase. European Central Bank Vice President Luis de Guindos recently expressed expectations of a slight contraction or, at best, stagnation in the Eurozone economy for the fourth quarter. This anticipation stems from the October business activity data, which pointed to further weakness in the dominant services industry.

Contrary to the typical trend during economic downturns, employment in the Eurozone increased by 0.3% quarter-on-quarter during the same period, resulting in a 1.4% year-on-year rise. Eurostat data revealed varied economic performances, with France experiencing 0.1% quarterly growth, Spain at 0.3%, and Belgium at 0.5%. However, these positive figures were offset by a 0.1% quarterly slump in Germany, no growth in Italy, and contractions in Austria, Portugal, Ireland, Estonia, and Lithuania.

The economic slowdown is attributed to strong headwinds from high inflation, record-high interest rates, and a gradually tightening fiscal policy. In response to a sharp drop in inflation in October, the European Central Bank decided to maintain unchanged interest rates at its October 26th meeting, concluding a streak of 10 consecutive rate hikes. Luis de Guindos emphasized that, given the current high uncertainty, the institution would continue to adopt a data-dependent approach in shaping its future monetary policy.

Reported by Jan Strupczewski, adhering to Thomson Reuters Trust Principles.