According to the revised data released by Eurostat on Thursday, the Eurozone, which consists of 20 countries, contracted by 0.1 percent in the first quarter of the year. With a similar contraction rate in the fourth quarter of 2022, the bloc has entered a technical recession.
Eurozone experienced the mildest recession possible during the winter months following the increase in energy prices due to Russia’s invasion of Ukraine.
The revised data released on Thursday for the economy consisting of 20 countries indicates a 0.1 percent contraction between January and March, which corresponds to the same figure as the contraction experienced in the fourth quarter of 2022. As a result, the Eurozone economy contracted in the first six months after the pandemic.
Analysts participating in the Bloomberg survey had predicted a slowdown in production at the beginning of the year.
The results are considered surprising following the repeated statements by politicians and officials from the European Central Bank that a decline could be prevented, despite inflation soaring to its highest level since the introduction of the euro.
On the other hand, policymakers will take courage from the fact that the billions of euros in aid they provided to households across the bloc did not result in the much-feared serious economic damage after Russia’s invasion.
With growth likely to return in this quarter, governments will continue to withdraw fiscal support. However, it is considered unlikely that the European Central Bank will change its course as it approaches the end of its historic interest rate hike cycle and sees inflation as a prerequisite for sustainable economic expansion.
According to Eurostat, the weakness in the first quarter of the Eurozone was attributed to a decline in government and household spending. Stocks made a negative contribution while trade supported production.
The data revealed that Greece and Ireland fell into recession following the figures from Germany, which is the largest economy in Europe, and Estonia has not grown since the end of 2021. Additionally, Lithuania, Malta, and the Netherlands also contracted in the first quarter.
It is noted that the outlook for the Eurozone has improved since then. The European Commission raised its outlook for the region last month, predicting a 1.1 percent increase in GDP this year and a 1.6 percent increase in 2024.