Eurozone economy contracted at the start of the year due to Ireland
The eurozone economy contracted at the start of the year, after an unprecedented slump in Ireland forced a revision of data that initially showed weak growth, Bloomberg reported.
The region's gross domestic product (GDP) fell by 0.2% in the first quarter of the year, according to Eurostat data released on Friday, compared with an earlier estimate of 0.1% growth. This is mainly due to a sharp downward revision of the Irish GDP estimate, which fell by 12.1% instead of the previously reported 2%.
Although the large number of multinational companies based in Ireland often distorts the data for the entire eurozone, the huge drop in the first quarter further complicates the assessment of where the region's economy is heading. This complicates the task of the European Central Bank (ECB) in assessing the consequences of the US and Israel's war in Iran and in setting appropriate monetary policy.
Central bankers signaled a possible first interest rate increase since 2023 at their next meeting, arguing that they can no longer ignore the energy shock that pushed eurozone inflation to 3.2% in May. However, some ECB officials fear that higher oil and gas prices could derail the nascent economic recovery.
Economic activity in the region has declined over the past two months, with the contraction in May even reaching the fastest pace since 2024. Earlier this week, the Organisation for Economic Co-operation and Development (OECD) said the eurozone economy would grow by only 0.8% this year and warned that "recent indicators point to a deterioration in sentiment."
In addition to the Irish data, statistics for the larger economies have also been revised in recent days. French GDP saw a downward revision, while Italy's turned out stronger than previously reported.
In Ireland itself, the multinational sector contracted by 27% over the period. But the underlying data shows a much more positive picture. Modified domestic demand — a more accurate measure of the economy — increased by 0.6%, driven by consumer spending.
