Chart of the Week: euro area ‘recession’ probably short-lived

Newly revised data from Eurostat show that the euro area[1] has recorded two consecutive quarters of negative growth, and is now in technical recession. Downward revisions in the GDP numbers for Germany and Ireland helped to ensure real GDP across the then 19-country currency bloc fell by 0.1% in both 2022 Q4 and 2023 Q1, thus just about meeting the definition. In fact, there are multiple definitions of a recession, and an economy does not necessarily have to experience two quarters of negative economic growth to enter one. In 2001, the euro area went into recession without meeting the definition of a technical recession, following a high oil price, a weak euro and rising food prices. To determine whether a country has entered recession, economists look not just at GDP but at a range of indicators, including the labour market. The seasonally adjusted unemployment rate in the eurozone is declining, and was at a record low of 6.5% in April. Vacancy rates were 3.1% in 2022 Q4, down slightly from a record 3.2%. It is worth noting that the unemployment rate is a lagging indicator of the business cycle. Furthermore, consumer confidence increased in the EU and remained stable in the euro area in May 2023, according to the consumer confidence indicator of the European Commission’s Directorate General for Economic and Financial Affairs. However, it is still below its long-term average. Thus, although the euro area has entered a technical recession by definition, decreasing unemployment and stable consumer confidence indicate that the countries may not be in recession yet. A broader set of indicators suggest that any recession could be short-lived and very shallow.

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[1] These data are for euro area 19 (i.e., excluding Croatia, which joined the euro area in January 2023)

The views expressed in this article are the views of the author, not necessarily those of Refinitiv Lipper or LSEG.