Growth in the eurozone economy accelerated in the second quarter, but the region’s prospects are hurting as Russia continues to cut gas supplies.
The 19-member bloc posted a GDP rate of 0.7% in the second quarter, according to Eurostat, the European statistics office, beating expectations of 0.2% growth. It comes after GDP averaged 0.5% in the first quarter.
The numbers contrast sharply with negative annual readings out of the US for both the first and second quarters, as the eurozone continues to benefit from the reopening of its economy after the pandemic.
However, a growing number of economists expect the eurozone to slip into recession next year, with Nomura, for example, forecasting a 1.2% annual contraction and Berenberg citing a 1% slowdown.
Even the European Commission, the EU’s executive arm, has acknowledged that recession could be on paper – and as early as this year if Russia completely cuts off gas supplies to the region.
Officials in Europe are becoming increasingly concerned about the possibility of gas supplies being cut off, with European Commission President Ursula von der Leyen saying Russia is “blackmailing” the region. Russia has repeatedly denied that it is using fossil fuel supplies as a weapon.
However, Gazprom, Russia’s state-owned energy giant, reduced gas supplies to Europe via the Nord Stream 1 pipeline to 20% of its full capacity this week. In general, 12 countries of the European Union are already experiencing partial interruptions in gas supplies from Russia, and a few others have been completely closed.
European Economics Commissioner Paolo Gentiloni said the latest growth figures were “good news”.
Mystery remains high in the coming quarters: [we] We need to maintain unity and be prepared to respond to the evolving situation as necessary.”
The GDP readings come at a time of record inflation in the Eurozone. The European Central Bank raised interest rates for the first time in 11 years earlier this month – and more aggressively than expected – in an attempt to lower consumer prices.
However, soaring inflation in the region is being driven by the energy crisis, which means further cuts to Russian gas supplies could push prices even higher.
“Given the challenging geopolitical and macroeconomic factors that have been at play over the past few months, it is positive to see the eurozone experience growing, and at a higher rate than last quarter,” Accenture’s Europe Strategy Leader Rachel Barton said in a report. E-mail.
“However, it is clear that continued supply chain disruption, rising energy prices, and record inflation levels will have an impact in the long run.”
Meanwhile, Andrew Kenningham, chief European economist at Capital Economics, said Friday’s GDP figure would represent “by far the best quarterly growth rate for some time.”
“In fact, the news that inflation was higher than expected once again only confirms that the economy is heading into a very difficult period. We expect the recession to start later this year,” he added.
Eurostat also published revised inflation figures on Friday, with the annual inflation rate reaching 8.9% in July, up from 8.6% in June.
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