Preliminary data show that the economies of several major Western European nations contracted in the fourth quarter of 2022 and early 2023. In Germany, GDP growth was -0.4%, caused largely by the energy crisis following geopolitical tensions, which severely impacted industrial production and squeezed household budgets. Rising costs of living, tight monetary policy, and declining demand from international trade partners further triggered this downturn. Other nations, such as Sweden and the UK, experienced successive quarters of near-zero or negative growth.
In response to these soaring price levels, major central banks, including the European Central Bank and the Bank of England, rapidly hiked policy interest rates, making borrowing significantly more expensive for businesses and consumers alike.
Extract G (lines 1–2) states that 'the economies of several major Western European nations contracted in the fourth quarter of 2022 and early 2023'.
Explain two factors that may cause an economy to go into recession.
