Europe eliminates economic growth by avoiding a gas disaster
FRANKFURT, Germany –
The European economy posted meager gains late last year as hyperinflation caused by high energy prices and Russia’s invasion of Ukraine deterred people from spending at shops and restaurants.
Economic output grew 0.1% in the last three months of 2022, the European Union’s statistics agency Eurostat reported on Tuesday, avoiding a full-blown recession as warmer-than-usual winter weather made it worse. ease concerns about energy constraints in Europe.
The eurozone nations – 19 in 2022, now 20 after Croatia joined the euro zone in the new year – appear to have avoided the worst-case scenario: forced industrial shutdowns due to drying up ran out of natural gas after Russia shut down most of its supplies. Warm weather and efforts to find new supplies by ship instead of pipelines from Russia have allayed that worry for now.
Still, natural gas prices are still three times higher than they were before Russia began massing troops on Ukraine’s border, following a record 18-fold increase in August. Those prices are hitting the bills. utilities and get leading companies to pass the cost on to customers by charging more for goods and food.
“Growth remains very weak,” said Rory Fennessy, Europe economist at Oxford Economics. He added that “positive reading may mask underlying weakness in domestic demand” and that “private consumption may have contracted.”
Growth also faced headwinds due to reduced activity in China, a major trading partner, as severe COVID-19 restrictions have since been lifted. Economic resilience is a key question for Europe and the global economy this year, given China’s previous role as a driver of global growth.
While unimpressive, Europe’s growth numbers at least increase the chances it will pass without a technical recession even if economic growth was negative in the first three months of the year. now on. Two consecutive quarters of falling output is one definition of a recession, although economists on the euro zone business cycle definition use a wider variety of data such as the unemployment rate and unemployment rate. Depression.
The news comes as the International Monetary Fund raised its forecast for global economic growth this year from 2.7% to 2.9% – not high but an improvement partly based on hopes for for China. A stronger global economy is important to Europe thanks to its extensive trade links.
However, the German economy, Europe’s largest, unexpectedly shrank 0.2% in the fourth quarter, according to data released on Monday. Concerns about slowing economic growth have so far not stopped the European Central Bank from making a series of rate hikes, which are driving up the cost of borrowing for businesses and consumers. in an attempt to cool down inflation.
Consumer prices rose 9.2% in December from a year earlier, well ahead of the central bank’s 2% target. Raising interest rates is the main antidote to excessive inflation but can slow the economy by making it more expensive to buy a home or car on credit or to borrow to expand a business.
The central bank’s board is expected to add another half-percentage point rate hike at its meeting on Thursday.
Interest rate hikes by other central banks around the world, including the US Federal Reserve and the Bank of England, also put additional strain on the global economy. ECB officials say raising rates now and curbing inflation before it hits the economy will help avoid more drastic action later.