With the rise in prices, some supermarkets do not restock their shelves as in this store in Berlin on October 18, 2022 (AFP / Florian CAZERES)
Economic growth in the euro zone was significantly out of steam, but a little less than expected, in the 3rd quarter: a very temporary reprieve, while the prospect of a recession is approaching against a backdrop of record inflation in October.
The Gross Domestic Product (GDP) of the 19 countries sharing the single currency increased by 0.2% over the July-September period compared to the previous quarter, after having already held up better than expected in the 2nd quarter (+0.8%) , according to figures released Monday by the European statistics office Eurostat.
This could only be a reprieve, however: the surge in prices, in particular energy, continues to accelerate against a backdrop of war in Ukraine and the raising of rates by the European Central Bank (ECB) darkens the situation.
Other indicators are already showing a contraction in economic activity: “The reversal is at work. It is no longer a question of whether we are going to enter a recession, but how severe this recession will be ( …) A recession this winter in the euro zone is imminent”, reacted Paolo Grignani, expert of the firm Oxford Economics.
“The probability of a recession is much more on the horizon,” ECB President Christine Lagarde had already warned on Thursday.
For Mr. Grignani, the performance of the euro zone was driven by “the solidity of household consumption”, in particular in tourism, reinvigorated during the summer holidays after two years of pandemic, while business investments held up better than expected.
-Surprise growth in Italy-
In France and Spain, GDP rose by 0.2%, after rising by 0.5% and 1.5% respectively in the previous quarter. But the biggest surprises came from Germany and Italy, two countries yet extremely affected by the energy crisis and inflation.
In Germany, where a decline in GDP was expected, activity in Europe’s largest economy actually rose 0.3%, according to an indicator released on Friday. While Berlin has released tens of billions of euros to relieve households in the face of rising prices, “private consumption” has made it possible to limit the damage, according to the national statistics institute Destatis.
On Monday, Italy unveiled growth of 0.5%, while the former government, led by Mario Draghi, on the contrary forecast a “slight decline” in GDP. Here again, the good performance of the services sector played a role (up by at least 1% according to Oxord Economics).
However, this resilience could be short-lived: inflation in the euro zone accelerated further in October, to a new record (+10.7% over one year), driven by the persistent surge in energy prices (+ 41.9%). For food, tobacco and alcohol, prices rose by 13.1%.
Inflation in the euro zone had reached 9.9% in September (revised figure), already the highest since Eurostat began publishing the indicator in January 1997.
-“Complicated” monetary policy-
In October, France, which adopted consumer protection measures, including lower fuel prices, maintained the lowest inflation in Europe, at 7.1%, according to harmonized Eurostat data. .
Germany is at 11.6%. The Baltic countries, particularly exposed to the consequences of the war in Ukraine, suffer from the highest inflation: 22.4% in Estonia, 22% in Lithuania and 21.8% in Latvia.
To combat price fever, the ECB raised its rates by 0.75 points for the second time in a row on Thursday and the “journey” is not over, warned Ms. Lagarde, paving the way for new monetary policy tightening to raise borrowing costs and dampen demand, thereby cooling prices.
A risky choice in a context of economic cooling, and criticized by several leaders, including French President Emmanuel Macron. Raising rates is “the most appropriate decision to restore price stability, of paramount importance (…) for prosperity and the recovery of the economy”, replied Ms. Lagarde.
However, the divergence in inflation rates between countries in the euro zone (from 7% in France to some 20% in the Baltic countries) “further complicates the development of a common monetary policy”, observes Paolo Grignani, from Oxford Economics.
© 2022 AFP
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