The euro zone economy is set for a symbolically important reversal on Thursday, when economists expect official growth figures to be revised down to show a slight contraction in output over the past two quarters.
The shift would eclipse the recent performance of the euro zone economy, which has fared better than many economists feared when it was hit by an energy and living-cost crisis sparked by Russia’s all-out invasion of Ukraine last year.
A downgrade could also change the mood of ECB policymakers, who meet in Frankfurt next week. The ECB’s rate-setter cited the recent “resilience” of the euro zone economy as a reason to keep raising rates.
“While these changes won’t be a big deal from a macroeconomic perspective, they could alter the narrative and discussions at ECB Governing Council meetings,” said Oxford Economics economist Oliver Lakau.
Eurostat Eurostat is due to release revised estimates of first-quarter gross domestic product for the 20-nation single currency bloc on Thursday.
The EU economy stagnated in the last three months of last year, growing 0.1% quarter-on-quarter in the first quarter, according to the latest figures from Eurostat.
Mark Cus Babic, an economist at Britain’s Barclays, told the FT that a “mechanical aggregation” of the latest euro zone GDP data released by member states suggested that both quarterly ratings were flat. Possibly downgraded to contraction.
Barclays forecast a 0.1% quarter-on-quarter decline for both three-month periods, which would meet some experts’ definition of a recession.
But Cus Babic said there was some uncertainty because “the growth rate for the euro area as a whole reported by Eurostat may deviate from the aggregate growth rate of individual countries by a few basis points”.
In the weeks since Eurostat published its preliminary estimates in late April, several members of the single currency area have revised down their first-quarter GDP estimates, including Germany, Ireland and Finland.
“It is quite possible that the euro zone economy is actually in a winter recession,” said Carsten Brzeski, head of macro research at Dutch bank ING. “A contraction in the first quarter is very likely and a downward revision in the fourth quarter is not out of the question.”
He added that the Dutch figures, which were not included in Eurostat’s preliminary estimate, could add to downward pressure after the Netherlands statistics agency last month. Announce Its gross domestic product contracted 0.7% in the first quarter.
Italy was one of the few countries to raise its first-quarter GDP forecast, raising its growth rate to 0.6% last week from an initial estimate of 0.5%. Holger Schmieding, chief economist at Berenberg Bank, said Italy’s upward revision could mean stagnation rather than contraction in the euro zone in the first quarter. Greece has yet to release first-quarter GDP data, which may also offset some of the gloom.
It will be harder for the ECB to “send a decidedly hawkish message” if the euro zone economy turns from modest growth to a modest contraction, especially after headline inflation and core inflation (excluding energy and food) fell more than expected last month. said Rakau of Oxford Economics.
European Central Bank President Christine Lagarde said on Monday that “price pressures remain strong” in the euro zone, with economic activity “underpinned by lower energy prices, easing supply bottlenecks and fiscal policy support for businesses and households,” suggesting next week Further rate hikes are likely.”
On Tuesday, economic data from the euro zone was weaker than expected at the start of the second quarter. Retail sales in the euro zone stagnated in April, when economists expected a 0.2% rise, while German factory orders fell 0.4% in the same month, defying forecasts for a 3.8% rise.