Eurozone inflation hits record high of 7.5% as growth slows amid Ukraine war

THE EUROZONE ECONOMY felt the fallout from the Ukraine war as output slowed and inflation hovered at record levels, official data showed today, jeopardizing Europe’s recovery from the pandemic.

The EU statistics agency said growth in the 19 countries that use the euro dragged to 0.2% between January and March, down from 0.3% in the final quarter of 2021.

For the European Union as a whole, gross domestic product grew by 0.4% in the first quarter, compared to 0.5% in the last three months of 2021.

Among the major economies, Spain and Germany experienced growth of 0.3% and 0.2% respectively in the first three months of the year. France was flat and Italy fell, minus 0.2%.

The small uptick in eurozone growth “means the region will avoid a technical recession for at least the first half of the year,” said Andrew Kenningham, chief Europe economist at Capital Economics.

“But rising inflation and the fallout from the Ukraine war mean GDP is likely to contract in the coming quarter,” he said.

price shock

Compared to a year ago, the level of growth in Europe remains high, due to large drops in GDP due to the coronavirus pandemic that brought the world economy to its knees.

This meant that the year-on-year growth rate increased by a solid 5% for the eurozone and 5.2% for the EU as a whole, compared to the first quarter of 2021.

The big impact continues to be consumer prices, with the economy hurt by rising consumer prices, especially in the energy sector due to the war in Ukraine.

Consumer prices in the eurozone soared a record 7.5% in April, up from a revised 7.4% the previous month, Eurostat said.

These figures are the highest recorded by the European Statistics Office since the publication of this indicator began in January 1997.

Inflation has broken a new record every month since November, although the jump in April was more moderate than in previous months.

In April, the highest rate of increase was recorded by the price of energy, which rose by 38%. This increase was slightly slower compared to March when it reached 44%.

Rate hikes?

The European Central Bank believes that inflation will gradually ease from today’s impressive levels, but remain well above its 2% target for the rest of 2022 at least.

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The ECB has faced pressure to raise rates and curb stimulus that critics say stokes inflation, but Christine Lagarde, the central bank’s president, has said cutting off taps abruptly would accomplish little.

“If I raise interest rates today, it’s not going to lower the price of energy,” Lagarde told US network CBS this week.

But ING economist Bert Colijn said Friday’s continued growth figures, albeit weak, meant the ECB was likely to “act sooner rather than later” on rate hikes.

“As long as the economy remains weak…don’t expect the ECB to wait much longer,” he said.

Analysts agreed that given the unknowns surrounding the war in Ukraine, the outlook for the European economy in the coming months remains highly uncertain.

© AFP 2022

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