Europe | Growth in a hostile environment

Summary

The eurozone economy has been virtually stagnant for several quarters now, underperforming expectations so far in the year's second half and with no clear signs of recovery on the horizon.

Key points

• Key points:
• GDP showed no growth in either 4Q22 or 1Q23, and after growing slightly in 2Q23 (+0.2% q/q), contracted again in 3Q23 (-0.1%).
• This performance is due in part to the weakness of the manufacturing sector, as illustrated clearly in Germany's GDP.
• Purchasing Manager Indexes (PMIs); i.e. the leading indicators that most closely reflect future quarterly growth for Europe, have been practically flat, remaining at low levels since July this year. Forecast growth for the full year is 0.4%.
• Tougher financial conditions arising from faster interest-rate increases by the European Central Bank (ECB) -the monetary authority has hiked its key rate by 4.5 points since it embarked on its tightening campaign in mid-2022- are also behind Europe's weakness.
• Looking ahead to next year, we expect Europe's economy to recover slowly, buoyed by further fiscal support from both European and national programs. A low jobless rate, coupled with accumulated savings, will also help fuel a certain recovery, of 0.7% for the full year.

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