Eurozone economy shrinks in third quarter: Inflation hits two-year low

The Eurozone economy unexpectedly contracted in the third quarter. Gross domestic product (GDP) fell by 0.1 per cent in the quarter, the European statistics office Eurostat said in a flash estimate on Tuesday. The good news is that inflation is at its lowest level in two years.

Although economists had expected growth of 0.2 per cent, the European economy grew by 0.1 per cent both quarter on quarter and year on year. While the economy grew by 0.2 per cent in the second quarter, it stagnated in the first quarter and the last quarter of last year.

Significant differences occurred in the economic performance of the major euro area countries in the last quarter. The economy grew by 0.1 per cent in France and 0.3 per cent in Spain. In Germany, the economy contracted by 0.1 per cent and in Italy GDP stagnated.

Highest growth in Belgium and Lithuania

The highest growth rate was recorded in Belgium (0.5 %), followed by Lithuania (0.6 per cent). Compared with the same quarter of the previous year, the economy grew by 1.5 per cent. On Monday, the National Bank also reported growth of 0.5 per cent in the third quarter.

There is more good news on the inflation front, as year-on-year inflation in the eurozone fell to 2. 9 per cent in October, down from 4. 3 per cent in September. This is the lowest inflation rate for two years and a better result than Factset analysts had predicted.

Food and energy prices

According to Eurostat, food, alcohol and tobacco rose the most (+7. 5 per cent compared to +8.8 per cent in September). Energy prices, which rose sharply last year due to the war in Ukraine, fell by 11.1 per cent, compared with a fall of 4.6 per cent in September.

Belgian inflation is 0.3 per cent year-on-year and -1.7 per cent month-on-month, according to Eurostat. Statbel uses a different calculation method and on Monday put inflation at 0.36 per cent, the lowest since January 2021.

The European Central Bank (ECB) aims for inflation of 2 per cent in the medium term. It has already repeatedly raised interest rates to cool the economy and try to bring prices down.

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