Revised GDP Figures Show Contraction in Early 2023, Deepening Recessionary Concerns Amid High Inflation

The eurozone has officially entered a recession, with GDP figures revised to show a contraction of 0.1% in both the first quarter of 2023 and the final three months of 2022. This marks two consecutive quarters of negative growth, which is the technical definition of a recession.

The revisions from Eurostat, the EU’s statistical agency, confirm that the rising cost of living, particularly driven by the aftermath of the Russian invasion of Ukraine, has taken a heavy toll on consumer spending. Earlier estimates had suggested that the bloc narrowly avoided a recession, showing zero growth for both quarters.

While the eurozone is now in recession, the wider European Union managed to skirt one, with GDP rising by 0.1% in the first quarter of 2023, after a 0.2% contraction at the end of 2022. The UK, meanwhile, avoided a recession in early 2023, and the United States saw continued positive growth during the same period. However, GDP levels across the eurozone and the EU remain over 2% higher than their pre-pandemic levels at the end of 2019, while the UK economy still remains 0.5% smaller than it was before Covid hit.

Households across the eurozone have struggled under the pressure of escalating living costs, with rising energy and food prices exacerbating inflation rates. This has led to a significant drag on consumer spending, which in turn has weighed down the eurozone’s overall economic performance. Household final consumption contributed negatively to GDP growth, with a 0.1 percentage-point reduction in the first quarter, following a more substantial 1 percentage-point fall in the previous quarter.

Several of the eurozone’s largest economies, including Germany, have faced recessionary conditions, with France experiencing near-zero growth in the last quarter of 2022 and a modest 0.2% growth in the first quarter of 2023. Ireland also contributed to the overall decline, with GDP falling by 4.6% in the first quarter of 2023, although economists have raised questions about whether Ireland’s GDP figures truly reflect the underlying performance of its economy.

Despite the downturn, inflation across the eurozone has eased in recent months, with the annual rate dropping from a peak of 10.6% last autumn to 6.1% in May. This decrease has sparked speculation that the European Central Bank may be nearing the end of its cycle of interest rate hikes aimed at controlling inflation.