New figures show UK post-Brexit economic resilience far outweighs EU’s4 min read
UK narrowly avoids recession after economy flatlined
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Economic growth figures for the EU released on Wednesday show a fall in output for the bloc from the previous quarter. The UK, on the other hand, was found to have narrowly avoided this scenario last month by flatlining. While a handful of member states managed enviable numbers, big players such as Germany and Italy dragged the EU down – raising the sceptre of future recession in doing so.
Last month the Treasury breathed a sigh of relief as the UK was found to have avoided a recession in 2022 by the slimmest of margins, according to the Office for National Statistics (ONS).
The final quarter’s gross domestic product (GDP) – the value of all goods and services produced, in this case between October and December – was neither more nor less than the previous three months, coming in at zero percent.
Chancellor Jeremy Hunt commented that this unexpectedly positive result was testament to the “underlying resilience” of the British economy – resilience the EU does not appear to possess.
On Wednesday, the bloc’s statistical agency, Eurostat, revealed the combined GDP of the 27 member states contracted by 0.1 percent over the same period.
The group of countries also making up the Eurozone – the 19 nations using the common currency – fared slightly better, recording zero percent growth on par with the UK.
GDP had increased by 0.4 percent the previous quarter. Although worst-case scenarios involving gas shortages and recession were avoided, the harsh downturn over the winter months lays bare just how much the EU economy is struggling.
Analysts blame lacklustre spending. Eurozone household consumption in the October to December quarter experienced its steepest decline since its formation in 1999, outside of the pandemic.
Investment also dropped sharply, falling by 3.5 percent quarter-on-quarter.
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Looking at GDP growth around Europe reveals a mixed bag of fortunes. Only four states – all in the Continent’s south-eastern corner – pulled out expansion of over one percent.
The Greek economy grew the most in Q4 2022, at 1.4 percent, followed by Malta (1.2 percent), Cyprus (1.1 percent) and Romania (1.1 percent).
Latvia, Austria and Switzerland all flatlined like the UK, coming out better than the nine countries whose GDPs shrunk – including Italy (-0.1 percent) and Germany (-0.4 percent).
On the other end of the scale, Poland suffered the most painful contraction (-2.4 percent), followed by Estonia (-1.6 percent) and Finland (-0.6 percent) – all three notable for their geographic proximity to the still-ongoing war in Ukraine.
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Wednesday’s news is sure to set alarm bells ringing in Brussels. A recession is declared when the economy contracts for two successive quarters. This is not yet the case in the EU, but strong performance during the first three months of 2023 is now crucial.
As in the UK, employment growth is making the labour market ever tighter, in turn increasing the upward pressure on wages in part responsible for inflation. A recession could at least be helpful in this regard, but the bloc will have to bear down on price rises by other means.
Inflation in the Eurozone and the UK peaked back in October, and had decelerated to 8.6 percent and 10.1 percent respectively as of January.
Both the Bank of England (BoE) and it’s Frankfurt-headquartered counterpart the European Central Bank (ECB) hiked interest rates at breathtaking speed throughout 2022 in a bid to discourage price-pushing spending.
Now that all quarters have been counted, it has emerged that the UK’s annual GDP growth of four percent topped the EU and Eurozone figure of 3.5 percent, according to the UK Parliament.
At the European Commission’s Winter 2023 Economic Forecast meeting on February 13, commissioner for economy Paolo Gentiloni sought to put the numbers in context, saying: “The EU economy beat expectations last year, with resilient growth in spite of the shockwaves from the Russian war of aggression.
He also provided reassurance going forward: “And we have entered 2023 on a firmer footing than anticipated: the risks of recession and gas shortages have faded and unemployment remains at a record low. Yet Europeans still face a difficult period ahead. Growth is still expected to slow down on the back of powerful headwinds and inflation will relinquish its grip on purchasing power only gradually over the coming quarters.
“Thanks to a united and comprehensive policy response, the EU has weathered the storms that have hit our economies and societies since 2020. We must show the same resolve and ambition in tackling the challenges we face today.”
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