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Euro zone financial system grows 0.7% within the second quarter regardless of gasoline disaster and inflation surge

Progress within the euro zone financial system accelerated within the second quarter of the yr, however the area’s prospects get hit as Russia continues to scale back gasoline provides.

The 19-member bloc registered a gross home product price of 0.7% within the second quarter, in accordance with Eurostat, Europe’s statistics workplace, beating expectations of 0.2% progress. It comes after a GDP price of 0.5% within the first quarter.

The numbers distinction sharply with the destructive annualized readings out of america for each the primary and second quarter, because the euro zone continues to profit from the reopening of its financial system after the pandemic.

Nonetheless, a rising variety of economists expect the euro zone to slip right into a recession subsequent yr, with Nomura, for instance, forecasting an annual contraction of 1.2% and Berenberg pointing to a 1% slowdown.

Even the European Fee, the chief arm of the EU, has admitted {that a} recession may very well be on the playing cards — and as early as this yr if Russia fully cuts off the area’s gasoline provides.

Officers in Europe have change into more and more involved about the potential for a shutdown of gasoline provides, with European Fee President Ursula von der Leyen saying Russia is “blackmailing” the area. Russia has repeatedly denied it is weaponizing its fossil gas provides.

Nonetheless, Gazprom, Russia’s majority state-owned vitality large, decreased gasoline provides to Europe by way of the Nord Stream 1 pipeline to 20% of full capability this week. General, 12 EU nations are already affected by partial disruptions in gasoline provides from Russia, and a handful of others have been fully shut off.

European Economics Commissioner Paolo Gentiloni mentioned the most recent progress figures had been “excellent news.”

“Uncertainty stays excessive for the approaching quarters: [we] want to keep up unity and be prepared to answer an evolving state of affairs as obligatory,” he mentioned.

The GDP readings come at a time of document inflation within the euro zone. The European Central Financial institution hiked rates of interest for the primary time in 11 years earlier this month — and extra aggressively than anticipated — in an effort to carry down shopper costs.

Nonetheless, the area’s hovering inflation is being pushed by the vitality disaster, which means additional cuts of Russian gasoline provides might push up costs much more.

“Given the difficult geopolitical and macroeconomic elements which have been at play over the previous few months, it is optimistic to see the eurozone expertise progress, and at a better price than final quarter,” Rachel Barton, Europe technique lead for Accenture, mentioned in an e-mail.

“Nonetheless, it is clear that persistent provide chain disruption, rising vitality costs and record-breaking ranges of inflation may have a longer-term affect.”

In the meantime, Andrew Kenningham, chief Europe economist at Capital Economics, mentioned Friday’s GDP determine would mark “by far the most effective quarterly progress price for some time.”

“Certainly, information that inflation was as soon as once more even greater than anticipated solely underlines that the financial system is heading for a really troublesome interval. We count on a recession to start later this yr,” he added.

Eurostat additionally printed revised inflation figures Friday, placing annual inflation at 8.9% in July, up from 8.6% in June.

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