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Euro Area Avoiding Recession in 2023: Italy and Spain Top Estimates, Germany the Laggard in Europe

The Eurozone successfully averted a recession in the latter half of 2023, defying initial forecasts. This resilience was primarily due to robust economic growth in Italy and Spain, which effectively offset Germany's economic deceleration. The region's Gross Domestic Product (GDP) held steady in the final quarter, narrowly avoiding a decline following a modest 0.1% drop in the third quarter.

In the fourth quarter of 2023, Italy and Spain exhibited unexpected growth, registering increases of 0.2% and 0.6%, respectively. In contrast, France's economy remained stagnant, while Germany experienced a 0.3% quarter-over-quarter contraction. in YoY terms, Spain's economy grew by 2.0%, France's by 0.7%, and Italy's by 0.5%. The Eurozone, as a whole, saw a modest 0.1% growth, while Germany's economy shrank by 0.2%.

Our Take: Germany appears to be lagging, facing potential recessionary pressures exacerbated by ongoing strikes and protests that are impeding economic activity. However, leading indicators hint at an upcoming surge in economic activity, and an expected improvement in external demand could also contribute to a revival in Germany's economic performance. Overall, the recent GDP data is encouraging, signaling a 'soft landing' scenario and likely maintaining the current trajectory for interest rate cuts from the ECB.


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