This week, European and international business media is reporting that Europe’s economy entered into recession in the first quarter of this year.

After revising both previously reported Q4-2022 and Q1-2024 GDP data, the European statistics agency Eurostat reported today that the combined 20-nation GDP for euro sector fell at annualized rate 0.4 percent in Q1, having further declined in Q4-2022 after new revisions. The agency had previously reported in the first quarter GDP had grown in the first quarter, albeit slightly.

According to reporting by The Wall Street Journal, sizable changes to data from Germany, Ireland and Finland prompted the revision.

As Supply Chain Matters highlighted in late May, the German economy was declared in state of recession after first quarter GDP data was reported. Reuters indicated in its reporting this week that the Eurostat revision of Q1 data  was principally due to the revised estimate from Germany’s statistics office indicating two subsequent quarters of GDP contraction.

Besides Germany, Greece, Lithuania, Malta, Ireland and the Netherlands experienced quarter on quarter GDP declines.  Regarding Ireland, the WSJ indicated that the country’s economy experienced an upwards of 44 percent decline in factory output during March, attributed to U.S. pharmaceutical companies cutting back on production.  That led to a 17 percent annualized fall in Ireland’s GDP during Q1.

Both reports indicate that economists still believe that the Eurozone GDP will return to growth in the current quarter on the basis of falling energy prices and increased employment levels. Employment levels in the region increased 0.6 percent in Q1. Hence the notion of a state of technical recession. However, high inflation remains an ongoing concern.

Takeaway for Industry Supply Chain Management Teams

As noted in our previous commentaries, research arm’s January Research Advisory, 2023 Predictions for Industry and Global Supply Chains, indicated ongoing geo-political developments and a threat of recession among certain regions was on the minds of many businesses and their supply chain management teams entering 2023.

The concern for economic recession was especially focused on Europe with the ongoing hostilities of the Russia and Ukraine conflict and with residual high levels of inflation. Now, as the end of Q2 approaches, the euro zone economy has experienced a technical recession. There may be other countries or regions to come, but that still remains to be seen.

Industry supply chain management and integrated business planning teams need to be diligent in their planning of resources and global capacity. Teams are well aware that the second half is the build up to back to school and holiday related seasonal demand levels. There will be lots of analysis needed to ascertain the confidence and buying intentions of consumers and businesses.

Inventory will be a key concern as CFO’s continue to monitor working capital efficiencies, erosion of margins or expected declines in economic growth. With industry reports indicating that inventory overhang still remains in global supply networks, the risks of adding to these levels is cogent without a firm determinant of product level demand.

Similarly, global wide production levels remain in nine consecutive months of contraction due to decreased demand levels. What occurred in Europe can possibly occur elsewhere.

 

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