Europe’s economy slows as war and inflation take their toll

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Rising prices, declining consumer confidence related to the war in Ukraine and continued supply chain disruptions have slowed growth across much of Europe and heightened concerns about the region’s recovery after the pandemic.

The 19 countries that use the euro saw their economies grow by just 0.2% in the first three months of the year compared to the previous quarter, Eurostat, the European Union’s statistics agency, reported on Friday. .

“Clearly the picture for the first quarter is one of quite weak growth,” said Ángel Talavera, head of European economics at Oxford Economics. “Consumer confidence has fallen pretty sharply everywhere,” he noted, adding that household spending has slowed as wages have not kept pace with inflation, particularly in food and laundry. ‘energy.

Figures for gross domestic product, the broadest measure of economic output, varied across the eurozone. Germany, with Europe’s largest economy, recorded a 0.2% increase in GDP for January, February and March from the previous three months, taking its year-on-year growth to 4 %.

“The economic consequences of the war in Ukraine have had an increasing impact on short-term economic development since late February,” Germany’s Federal Statistical Office said in a statement.

The Spanish economy grew by 0.3% in the first quarter, although the improvement was much lower than the 2.2% recorded in the last quarter of 2021.

In France, where Covid restrictions remained in place for much of the first quarter, growth stagnated. In Italy, real GDP fell by 0.2% compared to the previous three months.

Inflation has been a persistent thorn, hitting an annual rate of 7.5% in the eurozone in April from 7.4% in March, according to Eurostat.

Inflation is “stubbornly high,” said Melanie Debono, senior Europe economist for Pantheon Macroeconomics. Food and other food prices have risen sharply. While energy prices have fallen 3.7% this month, they are still a third higher than a year ago. “There is a compression of real household incomes,” she said.

Ms. Debono expects growth to resume over the next three months as pandemic-related restrictions ease and activity in the services sector picks up. Still, the outlook for the rest of the year is darkening.

Risks, particularly those related to a possible energy embargo and other disruptions caused by Russia’s invasion of Ukraine, have intensified. This week, Russia cut gas supplies to Poland and Bulgaria. At the same time, the European Union moved closer to an agreement to stop the flow of Russian oil.

The impact of a sudden stop in Germany’s energy supply generated a high debt. The Bundestag, the country’s central bank, recently warned that a gas embargo would lower the country’s economic output by up to 5% this year.

Some economists offered a more optimistic estimate, but Pantheon’s Debono said a gas embargo would almost certainly push Germany into recession and “probably drag the rest of Europe down with it”.

Average growth among the 27 countries that make up the European Union was 0.4% in the first three months of 2022, Eurostat said, double the figure reported for the euro zone.

The US economy, on the other hand, contracted by 0.4% over the same period. Still, analysts have tended to be more optimistic about the outlook for the US economy, noting that consumer spending has remained strong despite high inflation. On the contrary, the resistance of demand in the United States compared to the rest of the world made the figures look a little less good: America’s appetite for imports far exceeded its exports to other countries. The resulting trade deficit reduced GDP

China, despite widespread lockdowns, recorded a 1.3% increase in quarterly growth.

Within Europe, the economies of Portugal, Austria and Latvia all grew by more than 2% in the first quarter, while Sweden recorded the worst performance with a decline of 0.4 %.

The intense uncertainty has raised concerns about the global economy. Last week, the International Monetary Fund revised its growth estimate to 3.6% from the 4.4% it forecast in January. Growth forecasts for the euro zone were more gloomy, down from 1.1% to 2.9% for the year.

Russia’s invasion of Ukraine “will have serious economic consequences for Europe, having struck when the recovery from the pandemic was still incomplete”, the IMF said in its latest regional outlook. “The war has led to sharp increases in commodity prices and aggravated supply-side disruptions, which will further fuel inflation and reduce household incomes and corporate profits.”

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