Skip to main content

Q4 collapse in domestic demand a bad omen

Recent evidence about the health of the euro-zone economy has been mixed. National figures released so far suggest industrial production rebounded in January but retail sales remained very weak. And while activity surveys now point to a small expansion in GDP in Q1, credit data are consistent with a sharp contraction in output. For our part, we think a recession is still the most likely outcome. One reason for this is that underlying economic dynamics were very weak going into 2023. With consumption and investment both down sharply in Q4, domestic demand experienced its second largest fall outside of the pandemic. And since high inflation is set to keep real household incomes depressed, and the drag from higher interest rates will intensify, we think further falls in domestic demand are likely in the coming quarters.

Become a client to read more

This is premium content that requires an active Capital Economics subscription to view.

Already have an account?

You may already have access to this premium content as part of a paid subscription.

Sign in to read the content in full or get details of how you can access it

Register for free

Sign up for a free account to gain:

  • Unlock additional content
  • Register for Capital Economics events
  • Receive email updates and economist-curated newsletters
  • Request a free trial of our services

Get access