Eurostat data released on June 8 show that the euro-area economy is in technical recession after GDP fell by 0.1% quarter-on-quarter in fourth-quarter 2022 and first-quarter 2023. Tourism and other customer-facing sectors are growing solidly even though above-target inflation is squeezing disposable incomes. However, strong services activity is keeping core inflation close to record highs, which is complicating the ECB’s task of maintaining price stability.
What's next? ECB researchers estimate that most of the impacts of monetary tightening are yet to be seen, and will peak in 2024. Unemployment will rise modestly and shortages of skilled workers and raw materials will persist. Lower disposable incomes and tighter financial conditions will weigh on GDP growth, but tourism has momentum. Further bank collapses pose a risk, while commodity price volatility will rise over the winter. Absent major shocks, the downturn will be fairly mild but prolonged.
In this report:
- Employment and wages
- Goods and services trade
- Growth prospects
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