What is happening?
Data released last week watch the eurozone economy barely grew in the last quarter. As for why, take your pick…
What does it mean?
Europe’s ongoing battle with inflation, war and supply chain issues have all contributed to sinking the region’s economy, which grew just 0.2% in the last quarter compared to the previous quarter. All of its major economies have been affected: Spain’s growth has slowed considerably, France’s production has not increased at all and Italy’s has shrunk. Germany didn’t really turn off the lights either, with its economy growing just 0.2%. But he been the only one to actually beat expectations. Oh, and its rise marked a rebound from the previous quarter’s 0.3% contraction, meaning it narrowly avoided slipping into a recession. Phew.
Why should I care?
The bigger picture: Rock, meet the anvil.
These data will no doubt make the European Central Bank (ECB) uneasy, especially when combined with inflation that will continue to rise: new data Friday watch that consumer prices in the euro zone were 7.5% higher in April than a year ago – the second consecutive record (Tweet that). And to think that the ECB’s inflation target is down to 2%. This means the central bank will likely have no choice but to raise interest rates this year, even though it has been adamant would not do this. This creates a whole new problem, remember: higher interest rates slow consumer and business spending, which could further hamper growth.
Zoom in: Stop fighting, ECB.
Europe’s record inflation was mainly driven by energy prices in the region, which were 38% higher in April than a year ago. And with Russia cutting off natural gas supplies to Poland and Bulgaria last week, gas prices have just risen another 20%. This will only push inflation higher and could force a reluctant ECB to intervene even sooner.