The first quarter of this year marked the entry of the eurozone into a recession, with economists expressing little optimism for the upcoming months.
According to revised estimates released on Thursday by Eurostat, the region’s statistics office, the 20-member bloc reported a gross domestic product (GDP) of -0.1% for the first quarter.
Initially, the agency had stated that the eurozone experienced a growth of 0.1% during the first three months of the year. However, this figure was later adjusted downward after Germany reduced its own growth figures for the same period and officially entered a recession. Ireland also revised its growth rate downward, revealing a contraction of nearly 5%.
Prior to the weak performance from January to March, the eurozone had also contracted by 0.1% in the last quarter of 2022. These two consecutive quarters of negative GDP performance have pushed the wider region into a technical recession.
In a note released on Thursday, Andrew Kenningham, Chief Europe Economist at Capital Economics, commented, “News that GDP contracted in the first quarter, after all, means that the eurozone has already fallen into a technical recession. We suspect that the economy will contract further over the rest of this year.”
Several euro economies, including Ireland, the Netherlands, Germany, and Greece, reported a quarter-on-quarter economic contraction for the first quarter.
The first quarter also saw a decrease of 0.3% in household consumption, highlighting the challenges faced by consumers due to rising prices.
Claus Vistesen from Pantheon Macroeconomics noted in a statement that the eurozone region is unlikely to experience significant growth in the coming months, with an expected slowdown in investment.
The lackluster economic environment poses a challenge for the European Central Bank (ECB), which has followed a hawkish approach over the past year and recently set its main rate at 3.25%. The central bank is scheduled to meet next week, and market players have priced in another 25 basis point increase.
However, a weak economic performance may limit the ECB’s ability to further raise rates in its attempt to address inflation. ECB officials have previously indicated that it is more important to reduce prices than to avoid an economic slowdown.
Following the data announcement, euro zone bond yields continued to trade higher on Thursday, as many market participants anticipate further monetary tightening.
