Eurozone Economy In Recession

(RTTNews) - Euro area economy entered a technical recession in the first quarter following the downward revisions to Germany and Ireland data.

Gross domestic product shrank 0.1 percent sequentially after posting a similar fall in the fourth quarter, the latest estimate from Eurostat showed Thursday. The first quarter GDP figure was revised down from the 0.1 percent expansion estimated initially.

Two consecutive quarters of negative growth is defined as a technical recession.

"Given that the impact of policy tightening is yet to fully feed through, we suspect that the economy will contract further over the rest of this year," Capital Economics' economist Andrew Kenningham said.

"The eurozone economy is very much back to muddling through, as monetary policy starts to weigh more heavily on activity, post-pandemic spending fades and the energy crisis looms," ING economist Bert Colijn said.

Year-on-year economic growth eased to 1.0 percent from 1.8 percent in the preceding period. The previous estimate showed an annual growth of 1.3 percent in the first quarter.

The expenditure-side breakdown showed that household consumption and government spending contributed negatively, while investment and external trade made positive contributions.

Household consumption dropped at a slower pace of 0.3 percent on quarter after easing 1.0 percent in the fourth quarter. Meanwhile, government spending declined 1.6 percent, in contrast to the 0.8 percent rise a quarter ago.

At the same time, gross fixed capital formation gained 0.6 percent, reversing the 3.5 percent drop.

Exports dropped 0.1 percent after falling 0.2 percent. At the same time, the decline in imports slowed to 1.3 percent from 2.5 percent.

The changes in inventories contributed negatively, by 0.4 percentage points to GDP.

Among the big four, the German economy shrunk 0.3 percent in the first quarter after a 0.5 percent fall, while all other three economies expanded. Italy and Spain GDP advanced 0.6 percent and 0.5 percent, respectively. France GDP grew 0.2 percent.

Within euro area, Ireland posted the biggest contraction of 4.6 percent, followed by a 2.1 percent fall in Lithuania.

Ireland's output decline was driven by weaker performance in the multi-national-dominated industry sector, the statistical office reported last week.

These sectors accounted for 53.0 percent of total value added in the economy, compared with a 47.0 percent share for all other sectors, the CSO said.