Consumer prices driven by the soaring cost of energy continued to take a toll on Europe, causing growth in the continent’s traditional engine, Germany, to stall even as other large economies grew faster than expected, new data released Friday showed.
In the 19 countries that use the common European currency, consumer prices jumped 8.9% in July compared with a year ago as inflation reached a fresh record, the third straight month of gains.
The economies of the eurozone bloc, benefiting from the easing of coronavirus restrictions, grew by 0.7% in the three months from April to June versus the previous quarter, according to official figures released by the European Union. The estimates will be revised in coming months as statisticians get more complete data.
But Germany, Europe’s largest economy, stagnated in the second quarter as trade slowed and the country grappled with the on-again, off-again deliveries of natural gas from Russia. Germany still gets nearly one-third of its gas from Russia, and high energy prices resulting from Russia’s war in Ukraine have hit the economy particularly hard.
The new data underline the uncertain economic environment facing Europe. Shocks from the slowdown in China caused by further COVID-19 lockdowns and the fears of a recession in the United States, which reported a second successive period of contraction this week, are contributing to a wider global slowdown.
Calling the outlook for the global economy “increasingly gloomy,” the International Monetary Fund this week downgraded its global growth forecasts from its April projections, predicting that output will fall to 3.2% in 2022, from 6.1% last year.
In Europe, where Germany usually serves as the driver for growth, countries whose economies do not rely as heavily on fossil fuels from Russia saw stronger growth in the same period, effectively flipping the script on Europe’s economic narrative.
France, Italy and Spain — all countries with a strong tourism sector — saw economic growth for the three months from April to June that beat analysts’ expectations. The French economy expanded 0.5% from the first quarter, while Italy’s grew 1% and Spain’s expanded by 1.1%.
The Baltic states, which first reached double-digit inflation levels in March, remained the region with the highest price levels in July.
Germany’s annual inflation increased to 8.5%, from 8.2% in June, as further cuts to gas deliveries from Russia have created concern that already record-high energy prices will climb even higher. Those increased costs, along with calls from the government to conserve energy and persistent supply chain problems from the pandemic shutdowns, have dragged on Germany’s industrial sector.
Economic growth in the eurozone is expected to slow in coming months as a rebound in services and tourism, driven by the dropping of restrictions surrounding the coronavirus pandemic, slows down. Europe could then face the prospect of a recession.
“From here on, we expect GDP to continue a downward trend as the services reopening rebound moderates, global demand softens and purchasing power squeezes persist,” Bert Colijn, an economist with ING, wrote in a research note. “We expect that to result in a mild recession starting in the second half of the year.”
The latest figures appeared to support last week’s decision by the members of the European Central Bank’s Governing Council to take a powerful step to address inflation by raising its three interest rates half a percentage point, the first increase in more than a decade.
Economists expect that the bank will continue to raise rates again at its next meeting in an effort to control rising prices.
“With inflation not showing any signs of cooling off in the short term and with the economic outlook not yet derailing, we expect another increase” of half a percentage point when the bank meets again in September, Nicola Nobile of Oxford Economics said in a note.
On Thursday, fresh data showed that the U.S. economy shrank for the second straight quarter, raising fears that the country could be entering a recession — or perhaps that one had already begun. GDP fell 0.2% in the second quarter, which followed a decline of 0.4% in the first quarter. With inflation also running hot in the United States, the Federal Reserve has raised its key interest rate by three-quarters of a point at its past two meetings, with more increases expected to come.
This article originally appeared in The New York Times.
By Melissa Eddyc.2022 The New York Times Company