Eurozone, De Guindos: “Technical recession at the end of 2023 and weak growth”

Brussels – Inflation continues to be a concern and a risk factor, to be monitored and worked on. Geopolitical tensions affect confidence and economic performance. The picture, in essence, remains full of question marks and negative indicators. Luis de Guindos, vice-president of the European Central Bank, warns: Scenarios of new slowdowns and “technical recession” loom over the Eurozone.

First of all,” he explains speaking at the 14th Spanish Investors’ Day, “the rapid pace of disinflation we observed in 2023 is likely to slow down in 2024 and stop temporarily at the beginning of the year, as in the case of December 2023,” as confirmed by preliminary Eurostat data showing a half-point increase compared to November. This is because support schemes launched against high bills will come to an end in the year that has just begun. “Energy-related compensatory measures will expire, leading to a transitory pickup in inflation.”
Although the development of the cost-of-living index appears to be more “physiological”, the economic performance is different. “Growth developments are more disappointing,” warns de Guindos. “Economic activity in the euro area slowed slightly in the third quarter of 2023,” and indicators point to “an economic contraction in December as well, confirming the possibility of a technical recession in the second half of 2023 and weak near-term prospects.”

A situation, as described, that appears serious. Because, warns the Eurotower’s number two, “the slowdown in activity appears to be broad-based, with construction and manufacturing particularly hard hit.” In essence, “incoming data indicate that the future remains uncertain and the outlook tilted to the downside,” and reforms, first and foremost those embedded in the National Recovery Plans (NRRPs), become even more important.

“In this context,” insists de Guindos, “sustainable and investment-oriented fiscal policies aimed at promoting the energy transition, strengthening the resilience of supply chains, and increasing euro area productivity support our goal of price stability.” It means that where monetary policy cannot go, national policy can and must act. “Structural reforms and investment to improve the euro area’s supply capacity can help reduce price pressures over the medium term.”