Lower inflation, improved supply chains, reopening of China… A wind of optimism is blowing again on the European economy, which could escape a recession this winter, which was deemed inevitable only a short time ago.
On Tuesday, a closely followed indicator confirmed a change of opinion around the outlook for the Old Continent, which seems to be resisting the consequences of the war in Ukraine better than expected, even if the situation is far from brilliant.
According to the S&P Global Flash PMI, economic activity in the eurozone returned to slight growth in January after six months of contraction.
The index, calculated on the basis of business surveys, recovered to 50.2, after 49.3 in December, and is at its highest for seven months. A figure above 50 indicates growth in activity.
Until very recently, experts almost unanimously predicted a contraction in activity in the last quarter of 2022, then in the first quarter of 2023, and therefore a recession.
They are reviewing their judgment.
The recovery of the PMI index, for the third consecutive month, is another sign that the euro zone “has so far avoided the deep recession that we and many others predicted”, acknowledged Andrew Kenningham of Capital Economics.
Admittedly, the headwinds remain significant. Demand for goods and services continues to weaken among the 20 countries sharing the single currency, new industrial orders continue to fall in January, although less sharply than in December, and the continued rise in interest rates Interest by the European Central Bank (ECB) casts a shadow over the economy for the coming months, economists point out.
Nevertheless, a possible contraction in gross domestic product would be “less severe than initially anticipated and the data suggest that a recession could simply be avoided”, underlined Chris Williamson, chief economist of S&P Global.
” A little bit of luck “
GDP figures for the fourth quarter of 2022 will be published by Eurostat next Tuesday.
Part of the improvement comes from the weather. “Sometimes it just takes a bit of luck. The eurozone economy avoided dramatic scenarios for this winter thanks to an extremely mild month of December during which gas stocks were less emptied than expected,” commented Bert Colijn for ING bank.
The return of relative calm to the energy markets enabled inflation to fall for the second consecutive month in December, to 9.2%.
Unemployment remained at 6.5% in November, its lowest level ever.
At the same time, supply difficulties “have eased”, which has benefited the manufacturing industry, particularly in Germany, while “the recent reopening of the Chinese economy has helped to improve the global economic outlook and thus favored a strong rebound in business confidence,” explained Chris Williamson.
ECB President Christine Lagarde was also optimistic last week at the Davos Economic Forum. “The news has become much more positive in recent weeks,” so the current year “will not be bright but much better than feared,” she said.
In its autumn forecast, the European Commission predicted GDP growth of 0.3% for the euro area in 2023, after 3.2% in 2022 and 5.3% in 2021. The year should therefore mark a sharp halt after the strong recovery of the economy following the historic recession caused in 2020 by the COVID-19 pandemic.
The latest encouraging news “could announce a weaker contraction than expected this winter”, also estimated the Commissioner for the Economy, Paolo Gentiloni, during a meeting of European finance ministers on January 17.
“Moderate growth is still expected for the rest of the year”, but “the war in Ukraine continues to cloud the outlook and the crisis is certainly not over”, he warned.