BRUSSELS - The euro zone economy narrowly avoided a technical recession in the second half of 2023 but stagnated in the final three months of the year, official data showed on Jan 30.

The singe-currency area’s economy has been hit by many factors including higher interest rates, a cost-of-living crisis hitting households spending and weakening global demand.

The zero-per cent quarter-on-quarter figure for the October-to-December period beat forecasts.

Analysts for Bloomberg and financial data firm FactSet had predicted a contraction of 0.1 per cent in the fourth quarter.

There were fears that, if the predictions had been correct, that would have meant two consecutive quarters of contraction – the threshold for a technical recession.

The EU’s Eurostat data agency also recorded no growth in 27-country bloc – including members that do not use the euro – over the October-December period after a contraction of 0.1 per cent in the third quarter.

Economists predict the economic stagnation will continue.

“We think that it will flatline in the first half of this year too as the effects of past monetary tightening continue to feed through and fiscal policy becomes more restrictive,” said Mr Jack Allen-Reynolds of Capital Economics, an economic research firm.

He added that the euro zone dodging a technical recession was “just semantics”.

“The big picture is that euro zone GDP has been flat since Q3 2022 when gas prices surged and the ECB (European Central Bank) started raising interest rates,” he said.

Energy prices soared after Moscow’s invasion of Ukraine and Europe’s subsequent shift to different energy sources after relying on Russia for many years.

The data also showed the EU and the euro zone economies grew by 0.5 per cent in the whole of 2023, compared with the previous year.

That figure is slightly lower than the European Commission’s forecast in November of 0.6 per cent growth in 2023.

The commission at the time predicted the euro zone economy would grow by 1.2 per cent in 2024. But officials this month suggested it could be lower.

The EU’s economy commissioner, Paolo Gentiloni, said there were downside risks to economic growth because of “geopolitical tensions”, especially in the Middle East.

The commission will present its latest forecasts in February 2024.

The euro zone economy was weighed down in 2023 by the performance of the continent’s powerhouse Germany.

The German economy shrank 0.3 per cent in the final quarter of 2023, Eurostat said.

Germany has been hit hard by multiple factors including meek consumption, falling orders for exports and confusion over the government budget.

German Finance Minister Christian Lindner dismissed accusations that his country was the “sick man” of Europe during an event at the World Economic Forum earlier in January 2024.

“Germany is a tired man after a short night and the low-growth expectations are partly a wake-up call,” he said.

France, the EU’s second-biggest economy, recorded zero growth in the final two quarters of 2023 while Italy, the third-largest, expanded by just 0.2 per cent in the fourth quarter.

Ireland’s economy recorded the biggest contraction for the period, shrinking 0.7 per cent.

There are hopes the European Central Bank will start cutting interest rates before the northern hemisphere’s summer, although ECB chief Christine Lagarde said last week it was too early to discuss such action.

On Feb 1, Eurostat will publish inflation data for January, after the annual rate reached 2.9 per cent in December. That is still above the ECB’s two-per cent target. AGENCE FRANCE-PRESSE