Eurostat, the European statistical office, revised down its GDP forecast for the euro area for the first quarter. The latest estimate shows that the eurozone’s GDP contracted by 0.1 percent, instead of the previously reported 0.1 percent growth. This change completes two consecutive quarterly declines, the trigger for a technical recession. What does this signify for the economy?
2. Germany sets the pace
The revision lowers the eurozone growth profile mainly because of what happened in Germany. In late May, Destatis, the German statistics office, updated its figures. It had initially expected the economy to shrink by zero in the first quarter but then revised the number downward to a 0.3 percent drop between January and March, following a 0.5 percent fall in the last quarter of the previous year. The result underscores the impact of the eurozone’s largest economy on overall EMU performance and confirms the technical recession status in Germany, as reported by Eurostat.
3. Is a crisis coming?
Beyond the technical definition of stagnation, a genuine recession implies a persistent decline in activity and employment. This pattern was seen during past eurozone downturns, notably between 2008 and 2009 during the global financial crisis, and again in 2020 amid the pandemic. In Spain, the downturn stretched from late 2008 to mid 2013, a period marked by job losses that reached around 2.5 million. The consensus among major forecasters, including the OECD, remained cautious. Even before the latest Eurostat revision, OECD projections suggested only a modest slowdown for the euro area in 2023, with forecasts around 0.9 percent growth and a brighter 2024 at about 1.5 percent. The forecast did not anticipate a real recession, even as growth cooled and some economies slowed.
Germany is viewed as likely to weather a temporary dip without long lasting macroeconomic damage, while Spain has shown relatively stronger momentum among the major euro economies. Portugal also appears as a relative standout among large euro area performers.
4. Why did the data deteriorate?
Eurostat paints a picture of weaker demand across the euro area. Household spending dropped, dipping by 1.0 percent in the last quarter and 0.3 percent in the first quarter. Public expenditure fell sharply in the year ahead, down 1.6 percent, while imports fell by 0.3 percent and exports slipped 0.1 percent. On the positives, business investment continued to grow at a modest pace, around 0.6 percent, and hours worked rose by about 0.6 percent as employment gains persisted.
5. Why is household consumption falling?
Sky-high inflation has eroded purchasing power, curbing household spending across the euro area. Higher interest rates have also dampened demand for durable goods financed through loans, further weighing on consumption patterns.
6. Will the US go into recession too?
There is a real risk of a similar squeeze in the United States. Minutes from the Federal Reserve’s last meeting indicate that some Fed economists anticipate a stretch of two consecutive quarters of negative growth later this year and early next year. Officials warn that the downturn could be mild in terms of unemployment compared with prior recessions, but a recession remains a possibility.
7. Recession or not?
The term recession carries a heavy psychological weight. Economists and commentators often avoid the word by using euphemisms, while the reality for households is a slower economy with tighter budgets. The emphasis remains on how much demand cools, how job markets adjust, and how governments adapt. The risk of overly pessimistic expectations is real, yet the data indicates a broad, synchronized slowdown rather than a collapse in activity.