FX.co ★ European economy at risk of tipping into recession

According to Bloomberg, the eurozone economy could shrink by 0.1% by the end of 2023 amid pandemic-related issues, aggravated by fears of a recession.

In this case, the region could endure two consecutive quarters of shrinking GDP. In the third quarter of 2023, Europe’s economic performance was extremely weak. Earlier, its economic growth was weighed down by the coronavirus pandemic. Now it is facing the risk of tipping into a recession.

Preliminary forecasts show a mild recovery is seen only in 2024. After all, Europe’s economy is under pressure from severely depressed activity in Germany’s manufacturing sector. The German economy is expected to contract by 0.2% in the fourth quarter of 2023 after losing 0.1% between July and September.

Other leading countries of the bloc are also unlikely to avoid a downturn in factory activity. In particular, Italy is forecast to experience zero economic growth by the end of 2023. France's GDP is anticipated to decline by 0.1% by year-end. At the same time, inflation in the euro area is still far from the central bank’s 2% target. In a best-case scenario, the consumer price index will approach this level no earlier than September 2024.

Notably, data from the Federal Statistical Office (Destatis) showed that Germany's manufacturing sector saw a significant downturn. Factory activity in the country contracted by 3.8% in the third quarter of 2023 compared to the same quarter a year earlier.

According to analysts, the manufacturing crisis in Germany intensified in October. By the end of the month, machinery and equipment production in Europe’s largest economy sagged by 13.5% compared to September, with industrial orders falling by 3.7%.