Euro zone economy unexpectedly expands in Q4, avoids recession

FRANKFURT, Jan 31 (Reuters) – The euro zone accelerated growth in the final three months of 2022, avoiding a recession even as high energy costs, weakening confidence and rising interest rates hurt the economy in currency bloc, data from Eurostat showed on Tuesday.

Gross domestic product in the euro zone rose 0.1% in the fourth quarter, beating expectations in a Reuters poll for a 0.1% decline. Compared to a year earlier, growth was 1.9%, above expectations of 1.8%.

Among the bloc’s biggest countries, Germany and Italy recorded negative growth rates for the quarter but France and Spain expanded, Eurostat added, based on a flash estimate that is subject to revisions.

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Russia’s nearly year-long war with Ukraine has proven costly for the euro zone, which now includes 350 million people in 20 countries, due to many members relying on cheap energy.

Soaring oil and gas prices have drained savings and stifled investment while forcing the European Central Bank to unprecedented rate hikes to curb inflation.

But the economy has shown some unexpected resilience, too, like during the COVID-19 pandemic, when growth exceeded expectations as businesses adjusted faster to changing conditions. than the creators predicted.

More recent numbers such as a key confidence indicator or the latest PMI data suggest that growth has hit bottom and a slow recovery is underway, helped by a mild winter with limited energy expenditure.

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With market-based energy prices hovering at pre-war levels, the International Monetary Fund upgraded its growth projection for the bloc on Monday, citing unexpected stability, aided by generous government support.

The IMF now sees growth of 0.7% for the whole year, above the 0.5% forecast in October and the 0.5% predicted by the European Central Bank in December.

But even if the bloc is better than feared, growth in 2023 will be one of the weakest on record due to a large decline in real income and rising interest rates.

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The ECB has raised rates by a combined 2.5 percentage points to 2% since July to tame inflation, and markets see another 1.5 percentage points hike in the middle of year, which would put the deposit at the highest level since the turn of the century.

Such rapid growth has put the brakes on bank lending, an important source of credit for businesses, and access to loans has already suffered its biggest drop in the last quarter since debt crisis in the bloc in 2011.

Reporting by Balazs Koranyi; Editing by Catherine Evans

Our Standards: The Thomson Reuters Trust Principles.


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