The continuing recession and the recent relapse in business confidence suggest that the Eurozone economy is in serious danger of suffering further modest contraction in the second quarter, IHS Global Insight Chief European and UK Economist Howard Archer said.
The firm expects the Eurozone economy to contract 0.7 percent this year, with very gradual recovery only starting in the latter months of the year.
The ongoing recession is likely to reinforce pressure on the European Central Bank to introduce further measures to try to support economic growth, and there is possibility of an interest rate cut to 0.25 percent in the near term.
Data released by the Eurostat this week showed that the euro area economy contracted 0.2 percent sequentially in the first quarter, marking the sixth successive contraction. Year-on-year, the economy shrank by 1 percent.
Among major member states, Germany just managed to return to growth, while France moved into modest recession and the Netherlands continued to contract. Italy and Spain recorded appreciable contractions, while Portugal, Greece and Cyprus remained well in recession.
According to Archer, April's weak purchasing managers' data and weakening business confidence also point to further GDP contraction in the second quarter, even though Germany is likely to see some pick-up in growth.
The economist noted that restrictive fiscal policy in many countries, difficult credit conditions, very high and rising unemployment, generally low earnings growth, and muted and currently stuttering global growth continue to hamper economic activity in the currency bloc.
However, the economy is poised to get some relief from the recent lift to consumers' purchasing power coming from the sharp retreat in consumer price inflation and lower input prices resulting from softer oil and commodity prices.
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June 05, 2026 16:18 ET A busy week for economic news flow saw a slew of reports being released that reflected the trends in the U.S. labor market. In Europe, economic growth and inflation data gained attention as the European Central Bank and Bank of England head for policy session later in the month. In Asia, the monetary policy session of the Indian central bank was in focus as the country, a major oil importer, reels under the pressures of a weaker rupee and rising inflation.