The euro area registered a moderate quarterly growth rate of 0.3% during the fourth quarter, after growing solidly by 2.2% during the third. The deceleration was in line with our expectations and was due to three main factors. First, the manufacturing sector continued to struggle with supply-chain disruptions. Second, energy prices reached record highs across Europe, driven in particular by a surge in gas prices, weighing on purchasing power. Third, the arrival of the highly contagious Omicron variant of the coronavirus led to the tightening of restrictions in several countries, weakening private consumption.

There were significant differences in economic performance across the region. While output in Spain, Italy and France expanded in October-December, that in Germany and Austria contracted. As the chart shows, the only major economy to exceed its pre-pandemic size (the fourth quarter of 2019) was France.

Two factors held back growth in Germany and Austria. The first was global supply-chain disruption, which severely hindered those countries’ large industrial sectors, particularly the automotive industry. The second was the strict curbs implemented to stem the spread of the Omicron variant, which dampened private consumption and tourism exports.

The spread of Omicron and rising energy prices will continue to act as a drag on private consumption growth during the first quarter of 2022. We expect growth in the euro area to accelerate in the second and third quarters and then to slow in the final months of the year, owing to the likely emergence of new variants and a spike in cases in the winter of 2022/23.