GDP data intensifies eurozone recession fears but inflation cools

(Alliance News) - Gross domestic product data which failed to paint an overly optimistic picture of the eurozone economy, though inflation data was an easier pill to swallow.

The main focus was that the eurozone may have just seen the start of a recession, but analysts were not not too concerned about the reading, perhaps due to the prospect of falling inflation.

"A drop in eurozone GDP keeps a small technical recession in the second half of 2023 a realistic prospect. With inflation falling faster than expected, the debate within the European Central Bank's governing council is set to turn more dovish, but don't expect rate cuts anytime soon," said ING Economics analyst Bert Colijn.

The eurozone's economy saw a slight quarterly contraction in the three months to September, whilst inflation slowed in October, according to Eurostat.

According to Eurostat, quarter-on-quarter, gross domestic product fell by 0.1%, having risen by 0.1% in the second quarter. This was worse than expected, with markets expecting GDP to have stagnated.

Rabobank said it expects "another modest decline" in GDP in the fourth quarter, followed by a slow recover.

"The war in the Middle East is a clear downside risk to our outlook, however," Rabobank warned.

Further, Tomas Dvorak, economist at Oxford Economics, said: "A further contraction in eurozone GDP in Q4 cannot be ruled out, albeit still with significant divergences in country performance. We will be revising down some of our near-term national GDP forecasts in our upcoming forecast round."

Oxford Economics will publish its new forecasts on November 8.

In better news, the flash eurozone harmonised index of consumer prices rose by 2.9% annually in October, slowing from a 4.3% increase in September. The print was expected to show a 3.1% rise in the period.

Month-on-month the figure rose by 0.1%, cooling from a 0.3% increase in September.

Oanda analyst Craig Erlam commented: "Inflation in the eurozone fell below 3% in October, with energy and food prices helping to push the headline number even lower than expected. While this is undoubtedly good news, the core number is probably a more accurate reflection of where things stand and the job the ECB still has in reining in inflation in a sustainable manner. Energy prices in particular are still volatile and base effects in the coming months will likely be less favourable. Underlying price pressures, particularly in services, still have a lot further to fall before the ECB can even consider cutting rates to support an economy that looks destined for recession."

Core inflation cooled to 4.2% in October, from 4.5% in September.

By Sophie Rose, Alliance News reporter

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