Eurozone enters recession after Germany Ireland growth revision. According to analysts, the recession hit the Eurozone in Q1 2018, and forecasts for the rest of the year are gloomy.
Eurostat, the region’s statistics office, presented revised estimates for the first quarter GDP of the 20-member bloc on Thursday.
The agency’s initial estimate for growth in the Euro Area for the first three months of the year was 0.1%. After Germany lowered its growth projections for the same period and officially entered a recession, this proclamation was revised downward. The growth rate for Ireland was also revised downward, now showing a decline of over 5%.
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A 0.1% quarterly decline in the Euro Area was already in place before the poor showing in January–March of this year. The region has also entered a technical recession due to the two negative GDP quarters.
The Eurozone is technically in a recession with the news that GDP shrank in the first quarter. According to a note released by Capital Economics’ senior Europe economist on Thursday, Andrew Kenningham predicted that the economy would continue to decline for the rest of the year.
Several eurozone economies, including Ireland, the Netherlands, Germany, and Greece, recorded economic contraction from the previous quarter to the first.
In the first quarter, household consumption fell 0.3%, revealing consumers’ strains due to rising costs.
In a note, Pantheon Macroeconomics’ Claus Vistesen predicted a slowdown in investment for the Euro Zone in the coming months.
The European Central Bank (ECB), which has been on a hawkish course over the past year and most recently put its main rate at 3.25%, is also struggling in the current economic climate. Market participants have factored in another 25 basis point increase ahead of next week’s central bank meeting.
The ECB’s capacity to raise interest rates further to combat inflation could be hampered by weak economic growth. However, in the past, ECB officials have indicated that they value price reductions more than averting a slowdown in economic activity.
After the data was released on Thursday, bond rates in the Eurozone continued trading higher, as many market participants anticipate additional monetary tightening.
