European Central Bank Vice President Luis de Guindos has issued a warning that the eurozone might have slipped into a recession towards the end of the previous year, with ongoing weak economic forecasts.
In a speech delivered in Madrid, de Guindos remarked that the recent sharp decrease in inflation is expected to stabilize shortly. He noted, “Soft indicators suggest an economic downturn in December as well, reinforcing the likelihood of a technical recession in the latter half of 2023 and subdued outlooks for the immediate future.”
He further added, “The latest data suggest a continued uncertainty regarding the future, with a tendency towards negative outcomes.”
De Guindos reiterated the ECB’s stance on maintaining its peak interest rates of 4% for a “prolonged period” to reduce inflation to the ECB’s goal of 2%.
Despite this, investors are anticipating at least five rate reductions this year, with the initial adjustment possibly occurring in March or April. However, several policymakers have deemed this schedule too aggressive, considering the persistent inflationary pressures.
Germany’s property crisis
Two leading research institutes have painted a bleak picture for Germany’s construction sector in 2024, signalling more trouble for the country’s already challenged real estate market.
The DIW Economic Institute’s study forecasts a decline in German construction spending for the first time since the financial crisis. Concurrently, a separate survey by the Ifo Economic Institute indicates that sentiment in the residential construction sector has hit a record low.
For a considerable period, the real estate sector in Germany and other parts of Europe experienced a boom, fueled by low interest rates and robust demand. However, this growth was halted by a swift increase in interest rates and costs, leading to financial difficulties for some developers, as bank financing became scarce and transactions stalled.
Laura Pagenhardt, one of the DIW study’s authors, commented, “The downturn in the construction industry is more prolonged than anticipated.” Klaus Wohlrabe, head of surveys at Ifo, echoed this sentiment, stating, “The outlook for 2024 is grim.”
This news aligns with the latest figures from Eurostat, which reveal a 2.1% drop in house prices across the eurozone in the third quarter of the previous year, with a 1.4% decrease in Germany compared to the preceding three months.
