Preliminary data from the European Union’s statistics agency Eurostat has shown that the eurozone economy unexpectedly contracted in the third quarter. This signals the challenges faced by the bloc amidst high interest rates and low global demand.
Gross domestic product (GDP) in the bloc dipped by 0.1% in the July-September period compared to the previous quarter. Economists polled by The Wall Street Journal had expected zero growth, making this reading fall slightly below expectations.
Compared to the same quarter last year, the economy expanded by only 0.1%, which is lower than the 0.2% predicted by economists. However, Eurostat has revised the GDP growth for the second quarter upward to 0.2% from the previously reported 0.1%. This revision may have contributed to the lower-than-expected third-quarter figures.
larger euro-area economies
Among the larger euro-area economies, Germany’s output decreased by 0.1%, slightly better than economists’ predictions. Meanwhile, France’s GDP grew by 0.1%, and Italy’s remained stable in the quarter, both in line with expectations. Austria’s economy contracted by 0.6%, while Ireland’s GDP shrank by 1.8% compared to a growth of 0.5% in the previous quarter. Ireland’s GDP is particularly susceptible to large swings.
ECB’s GDP growth forecast
The European Central Bank (ECB), which recently decided to hold interest rates following an unprecedented hiking cycle, predicts a GDP growth rate of 0.7% for this year and 1.0% for 2024 in the eurozone.
impact of high interest rates
High interest rates are expected to continue putting pressure on economic growth in the coming months. This will squeeze household demand and affect investment.
ECB’s deposit rate decision
However, the lower-than-expected GDP reading may lead the ECB to maintain its key deposit rate at the current level of 4.0%, rather than raising it.