Economy: The economy in the Eurozone is growing again

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Status: 01/24/2023 1:55 PM

The economy in the Eurozone has surprisingly returned to growth at the beginning of the year. New economic data suggests that a recession can still be avoided.

The economy in the Eurozone has surprisingly started to grow this year. The private sector purchasing managers’ index, meaning the industry and service providers combined, rose 0.9 points to 50.2 points in January, according to financial services provider S&P Global. After a six-month contraction, the scale is above the fifty-point mark again for the first time, and from that point it indicates growth.

Experts expected a value of 49.8 points. “The fact that the eurozone economy continued to stabilize earlier in the year suggests that the region can avoid a recession,” said Chris Williamson, chief economist at S&P Global. The reduced risk of gas rationing likely contributed to this, as well as the easing of supply bottlenecks.

‘Recession in Germany is not off the table’

In Germany, the economy contracted only slightly in January: here the gauge rose for the third month in a row by 0.7 to 49.7 points. However, experts have not yet provided all clarity. Phil Smith, global economist at Standard & Poor’s, commented on the development: “The German economy started the new year relatively flat.” “However, this does not mean that a recession in the eurozone’s largest economy is off the table.” According to preliminary estimates by the Federal Statistical Office, GDP stagnated in the last quarter of 2022.

At the same time, delivery problems receded, from which manufacturers in Germany benefited in particular: “And the recent opening up of the economy in China contributed to the fact that the prospects for a global economic recovery have increased again, which, in turn, has greatly boosted business optimism,” Williamson explained. Above all, more jobs have been created among service providers than there were six months ago. In industry, on the other hand, fewer new jobs were created than at any time in nearly two years.

‘The European Central Bank should be strengthened’

Surprisingly good economic development is likely to have consequences for the interest rate policy of the European Central Bank (ECB). “Today’s data should confirm the ECB’s assessment that the economy in the eurozone will experience only a moderate recession, which in itself increases the likelihood of a significant increase in interest rates,” said Christoph Weil, economist at Commerzbank.

The European Central Bank ended its zero interest rate policy last year. The main interest rate is currently 2.50 percent. It is likely to rise again next week – perhaps to 3.00 per cent. “High financing costs will slow the economy down with the usual interval,” said economist at Commerzbank Will. “In addition, there is a clear appreciation of the euro, which makes the economy less competitive in terms of price in the global market.” Last but not least, high inflation is causing deep holes in private household coffers.

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