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Eurozone Economy Grows Faster Than Expected, but So Do Prices


Consumer prices driven by the soaring cost of energy continued to take a toll on Europe, causing growth within the continent’s traditional engine, Germany, to stall whilst other large economies grew faster than expected, latest data released Friday showed.

Within the 19 countries that use the common European currency, consumer prices jumped 8.9 percent in July compared with a 12 months ago, as inflation reached a fresh record, the third straight month of gains.

The economies of the eurozone bloc, benefiting from the easing of coronavirus restrictions, grew by 0.7 percent within the three months from April to June versus the previous quarter, in line with official figures released by the European Union. The estimates will probably be revised in coming months as statisticians get more complete data.

But Germany, Europe’s largest economy, stagnated within the second quarter as trade slowed and the country grappled with the on-again, off-again deliveries of natural gas from Russia. Germany still gets nearly a 3rd of its gas from Russia, and high energy prices resulting from Russia’s war in Ukraine have hit the economy particularly hard.

Inflation F.A.Q.

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What’s inflation? Inflation is a loss of buying power over time, meaning your dollar is not going to go as far tomorrow because it did today. It is often expressed because the annual change in prices for on a regular basis goods and services corresponding to food, furniture, apparel, transportation and toys.

What causes inflation? It will possibly be the results of rising consumer demand. But inflation also can rise and fall based on developments which have little to do with economic conditions, corresponding to limited oil production and provide chain problems.

Is inflation bad? It relies on the circumstances. Fast price increases spell trouble, but moderate price gains can result in higher wages and job growth.

Can inflation affect the stock market? Rapid inflation typically spells trouble for stocks. Financial assets normally have historically fared badly during inflation booms, while tangible assets like houses have held their value higher.

The brand new data underline the uncertain economic environment facing Europe. Shocks from the slowdown in China attributable to further Covid-19 lockdowns and the fears of a recession in the USA, which reported a second successive period of contraction this week, are contributing to a wider global slowdown.

Calling the outlook for the worldwide economy “increasingly gloomy,” the International Monetary Fund this week downgraded its global growth forecasts from its April projections, predicting that output will fall to three.2 percent in 2022, from 6.1 percent last 12 months.

In Europe, where Germany normally serves as the driving force for growth, countries whose economies don’t rely as heavily on fossil fuels from Russia saw stronger growth in the identical period, effectively flipping the script on Europe’s economic narrative.

France, Italy and Spain — all countries with a robust tourism sector — saw economic growth for the three months from April to June that beat analysts’ expectations. The French economy expanded 0.5 percent from the primary quarter, while Italy’s grew 1 percent and Spain’s expanded by 1.1 percent.

The Baltic States, which first reached double-digit inflation levels in March, remained the region with the best price levels in July.

Germany’s annual inflation increased to eight.5 percent, from 8.2 percent in June, as further cuts to gas deliveries from Russia have created concern that already record-high energy prices will climb even higher. Those increased costs, together with calls from the federal government to conserve energy and chronic supply chain problems from the pandemic shutdowns, have dragged on Germany’s industrial sector.

Economic growth within the eurozone is anticipated to slow in coming months, as a rebound in services and tourism, driven by the dropping of restrictions surrounding the coronavirus pandemic, slows down. Europe could then face the prospect of a recession.

“From here on, we expect G.D.P. to proceed a downward trend because the services reopening rebound moderates, global demand softens and buying power squeezes persist,” Bert Colijn, an economist with ING, wrote in a research note. “We expect that to lead to a light recession starting within the second half of the 12 months.”

The most recent figures appeared to support last week’s decision by the members of the European Central Bank’s Governing Council to take a robust step to deal with inflation by raising its three rates of interest half a percentage point, the primary increase in greater than a decade.

Economists expect that the bank will proceed to lift rates again at its next meeting in an effort to manage rising prices.

“With inflation not showing any signs of cooling off within the short term and with the economic outlook not yet derailing, we expect one other increase” of half a percentage point when the bank meets again in September, Nicola Nobile of Oxford Economics said in a note.

On Thursday, fresh data showed that the U.S. economy shrank for the second straight quarter, raising fears that the country could possibly be entering a recession — or perhaps that one had already begun. G.D.P. fell 0.2 percent within the second quarter, which followed a decline of 0.4 percent in the primary quarter. With inflation also running hot in the USA, the Federal Reserve has raised its key rate of interest by three-quarters of a degree at its past two meetings, with more increases expected to return.

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