An increasing number of experts believe the eurozone will enter a recession next year. The eurozone’s economy expanded faster in the second quarter of this year, but the region’s prospects are harmed as Russia continues to restrict gas supply.
According to Eurostat, Europe’s statistics office, the 19-member bloc’s GDP rate was 0.7 per cent in the second quarter, exceeding predictions of 0.2 per cent increase. It follows a 0.5 per cent GDP growth rate in the first quarter.
The figures contrast dramatically with the United States’ negative annualised readings for both the first and second quarters, as the eurozone continues to gain from the reopening of its economy following the pandemic.
However, an increasing number of economists expect the eurozone to enter a recession next year, with Nomura forecasting a 1.2 per cent annual decline and Berenberg predicting a 1 per cent downturn.
Even the European Commission, the EU’s executive arm, has recognised that a recession could occur this year if Russia entirely cuts off the region’s gas supplies.
European officials have grown increasingly anxious about the likelihood of a gas supply disruption, with European Commission President Ursula von der Leyen accusing Russia of “blackmailing” the region. Russia has denied weaponizing its fossil fuel supplies on numerous occasions.
However, Gazprom, Russia’s majority-owned energy company, cut gas supply to Europe via the Nord Stream 1 pipeline this week to 20 per cent of full capacity. In total, 12 EU nations are already experiencing partial delays in Russian gas imports, with a few others fully cut off.
The newest growth estimates, according to European Economics Commissioner Paolo Gentiloni, are “excellent news.”
“Uncertainty remains high for the coming quarters: [we] need to maintain unity and be ready to respond to an evolving situation as necessary,” he said.
The GDP figures come at a time when the eurozone is experiencing record inflation. In an effort to reduce consumer costs, the European Central Bank raised interest rates for the first time in 11 years earlier this month – and more forcefully than predicted.
However, the region’s increasing inflation is being driven by the energy crisis, which means that additional Russian gas supply cuts could push prices further higher.
“Given the challenging geopolitical and macroeconomic factors that have been at play over the past few months, it’s positive to see the eurozone experience growth, and at a higher rate than last quarter,” Rachel Barton, Europe strategy lead for Accenture, said in an email.
“However, it’s clear that persistent supply chain disruption, rising energy prices and record-breaking levels of inflation will have a longer-term impact.”
Meanwhile, Capital Economics’ senior Europe economist Andrew Kenningham predicted that Friday’s GDP result will be “by far the greatest quarterly growth rate in a long time.”
“Indeed, news that inflation was once again even higher than anticipated only underlines that the economy is heading for a very difficult period. We expect a recession to begin later this year,” he added.
Eurostat also released revised inflation numbers on Friday, with annual inflation rising to 8.9 per cent in July from 8.6 per cent in June.
(Adapted from WionNews.com)