Euro zone economy shrinks in Q3 amid waning demand

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Euro zone economy shrinks in Q3 amid waning demand

The euro zone economy contracted by 0.1% in the third quarter of 2023, according to the latest data from Eurostat1. This was the second consecutive quarter of negative growth, following a 0.1% expansion in the second quarter, which was revised down from an initial estimate of 0.3%. The euro zone is now facing a double-dip recession, as the recovery from the pandemic-induced slump in 2020 has stalled.

The main reason for the contraction was a sharp decline in domestic and foreign demand, as consumers and businesses faced rising inflation, higher borrowing costs and supply chain disruptions. A survey by S&P Global showed that overall demand in the euro zone fell in September at the fastest pace in almost three years2. Both the services and manufacturing sectors suffered from lower orders and output, as well as longer delivery times and higher input costs.

The outlook for the fourth quarter is also bleak, as consumer confidence has deteriorated and new COVID-19 variants pose a risk of further restrictions. The European Central Bank (ECB) has revised down its growth forecast for 2023 from 1.5% to 0.7%, and expects inflation to remain above its target of 2% until 20253. The ECB has pledged to maintain its accommodative monetary policy stance, but some analysts have called for more fiscal stimulus to support the economy.

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