The recession does not seem to be hitting Europe (yet). If the United States is technically on the other side of the Atlantic – its economy has contracted for two straight quarters – economic activity in eurozone countries appears to be holding up despite an uncertain environment characterized by runaway inflation, a Consequences of the war in Ukraine. As reported by the Eurostat Institute on Friday, economic growth in the euro zone in the second quarter was even better than expected at 0.7% compared to the previous quarter and +4% compared to the second quarter of the previous year. That’s better than April-June in the United States, where the economy contracted.
If the war in Ukraine continues to drive up prices in the 19 countries that share the common currency, it has not yet brought the economy to a standstill. After 0.5% GDP growth from January to March, economists expected a significant slowdown. However, the activity has been spurred on by the good performance of tourist services thanks to the lifting of restrictions related to the coronavirus pandemic. However, the future remains very uncertain. Eurozone inflation was pushed to a new high from 8.6% in June to 8.9% in July by the war in Ukraine and Western sanctions against Moscow. This indicator has made a new high every month since November. In addition to rising energy prices (fuel, gas, electricity), European households are increasingly confronted with rising food prices.
Within the European bloc the situation is mixed. Growth was stronger in Spain (1.1%), Italy (1%) and France (0.5%). On the other hand, Germany, Europe’s largest economy, stagnated (0%). The lowest inflation in July was recorded in France (6.8%) and Malta (6.5%). The Baltic countries had the highest rates: 22.7% in Estonia, 21% in Latvia, 20.8% in Lithuania.
The German economy is faltering
Germany has one of the worst performances in the eurozone. German growth remained flat in the second quarter, weighed down by post-war inflation acceleration in Ukraine, which weighed on purchasing power and industrial activity, according to preliminary figures released on Friday. After growing 0.8% in the first three months of the year, Europe’s leading economy is struggling in “ a difficult global economic environment with the Covid-19 pandemic, disrupted supply chains, rising prices and the war in Ukraine “Explains the Federal Statistical Office Destatis in a press release, which, however, revised the growth for the first quarter significantly upwards, initially announced at 0.2%. So much so that this unusually large adaptation” makes it increasingly difficult to estimate growth in 2022 “.
The war in Ukraine ended the strong economic recovery that began a year ago after the historic recession caused by the 2020 pandemic. The resulting inflation in energy prices is hitting strong German industry particularly hard. Added to this are the effects of Beijing’s policy against Covid-19, which has led to exit restrictions and factory closures in China, Germany’s largest trading partner. Exporting companies, pillars of the German model, are particularly affected, especially the automotive industry, which is deprived of essential components.
Berlin has been expecting GDP growth of 2.2% this year since spring, compared to 1.9% according to the Bundesbank’s June forecast. However, the energy risk lingers and a halt to Russian gas supplies to Europe would reduce the value of Germany’s GDP by 1.5% in 2022 and 2.7% in 2023.
France, Spain, Italy resist
France returned to growth in the second quarter from April to June: its GDP increased by 0.5% after a 0.2% decline in the first quarter. This first estimate of gross domestic product (GDP) in the second quarter released by INSEE on Friday surely needs to be confirmed at the end of August. Although the clouds of recession seem to have dissipated for the time being, the price increase is still weighing on consumption. The consumer price index, for which INSEE published a first estimate for July on Friday morning, passed the 6% mark (+6.1% over one year after +5.8% in June).
On the other side of the Pyrenees, the Spanish economy fared even better. According to an official estimate by the Spanish National Institute of Statistics (INE), growth rebounded strongly to 1.1% after peaking at 0.2% in the first quarter. However, this positive index is accompanied by rising inflation, which stood at 10.8% over a year in July. This recovery in growth is explained in particular by the fact that Spain, which was badly hit by the Covid-19 crisis in 2020, has in recent months been lagging behind its neighbors, who have already eradicated the pandemic for many of their -related losses . However, the Spanish government expects activity to slow down in the coming months.
Italy also did well. Thanks in particular to the rebound in tourism, the country saw gross domestic product (GDP) rise 1% qoq in the second quarter, according to a first estimate released on Friday by the National Institute of Statistics (Istat). In an economic environment overshadowed by rising prices, Italian growth thus accelerated significantly compared to the first quarter, in which GDP growth was limited to 0.1%. This increase in GDP in the second quarter is above the expectations of the Bank of Italy, which forecast growth of around 0.5% in mid-July.” despite rising energy costs For 2022, the Bank of Italy had already raised its growth forecast in mid-July and now expects GDP to increase by 3.2% after 2.6% previously.
Decline in growth in Portugal and Austria
Portugal’s gross domestic product (GDP) fell by 0.2% in the second quarter of 2022, compared with a 2.5% increase in the first three months of the year. This decline can be explained in particular by this less pronounced growth in private consumption and investment “Explains the National Institute of Statistics (Ine), which publishes a first estimate on Friday. Year-on-year, Portugal’s GDP grew by 6.9% in the second quarter, compared to an 11.8% increase in the first three months of the year.
Not immune to the gloomy global backdrop, Austria is treading water, posting 0.5% growth in the spring compared to a 1.5% gain this winter, according to an initial estimate released on Friday. ” The positive momentum has fizzled out at all levels “, commented the reference institute Wifo in a press release. Industry and construction rose 0.7% and 0.1%, respectively, a far cry from first-quarter performance. On the demand side, household consumption fell by 1.9%. On the other hand, foreign trade held up with exports increasing by 2.7%. The same applies to business investments (+1.2%).
Outside the euro zone, in our neighboring countries Switzerland, the economic outlook is also becoming gloomier, according to the KOF barometer, a short-term indicator for the Alpine country’s gross domestic product (GDP), which has been falling for the third month. After a moderate decline in June, the decline in this barometer accelerated by 5.1 points to 90.1 points in July, the Economic Research Center of the Swiss Federal Polytechnic School in Zurich announced in a statement. It is well below the growth threshold of 100 points. ” The Swiss economy is likely to develop sluggishly in the autumn “, predict the researchers of the Zurich institute and shout “ dark clouds in the economic sky “.