Growth in the eurozone economy accelerated in the second quarter of the year, but the region’s outlook took a hit as Russia continued to reduce gas supplies.
The 19-member bloc registered a gross domestic product share of 0.7% in the second quarter, according to Eurostat, Europe’s statistics office, beating expectations for 0.2% growth. It comes after the GDP rate was 0.5% in the first quarter.
The numbers contrast sharply with annual negative readings out of the United States for both are first and second quarteras the euro area continues to benefit from the reopening of its economy after the pandemic.
However, a growing number of economists are predicting the euro zone will slip into recession next year, with Nomura forecasting an annual decline of 1.2% and Berenberg for example forecasting a 1% decline.
Even the European Commission, the EU’s executive body, acknowledges that a recession is likely – and as early as this year if Russia completely cuts off gas supplies to the region.
Officials in Europe are increasingly concerned about the possibility of a gas shutdown, with the European Commission President Ursula von der Leyen says Russia is “blackmailing” the region. Russia has repeatedly denied that it is weaponizing its fossil fuel supply.
However, Gazprom, Russia’s state-owned energy giant, reduced gas supplies to Europe through the Nord Stream 1 pipeline to 20% of its operating capacity this week. Overall, 12 EU countries have experienced partial disruptions in gas supplies from Russia, and several others have completely shut down.
European Economic Commissioner Paolo Gentiloni said the latest growth figures were “good news”.
“Uncertainty remains high in the coming quarters: [we] need to remain united and be ready to respond to an evolving situation as needed,” he said.
The GDP readings come at a time of record inflation in the eurozone. The European Central Bank raised interest rates for the first time in 11 years earlier this month – and more aggressively than expected – in a bid to lower consumer prices.
However, the region’s soaring inflation is being fueled by the energy crisis, meaning further cuts in Russian gas supplies could push prices up even more.
“Given the challenging geopolitical and macroeconomic factors that have played out over the past few months, it is positive to see growth in the region,” said Rachel Barton, head of Europe strategy at Accenture. euro and at a higher rate than the previous quarter. email.
“However, it is clear that persistent supply chain disruptions, rising energy prices and record inflation will have a more lasting impact.”
Meanwhile, Andrew Kenningham, chief Europe economist at Capital Economics, said Friday’s GDP numbers would mark “the best quarterly growth rate in a while.”
“Indeed, the news of inflation once again being even higher than anticipated only underscores that the economy is going through a very difficult period. We predict a recession to begin by year-end. now,” he added.
Eurostat also released revised inflation figures on Friday, putting annual inflation at 8.9% in July, up from 8.6% in June.
