INFLATION IN THE EURO AREA HAS REACHED 8.9 PERCENT, BUT THE ECONOMY IS GROWING
Inflation in European countries using the euro rose to another record in July, driven by high energy prices caused by the war in Ukraine.
LONDON (AP) — Inflation in EURO economy countries rose to another record in July, with energy prices rising as a result of Russia’s war in Ukraine, but the economy grew better than expected. . second trimester.
Annual Inflation In The 19 Eurozone Countries Rose To 8.9 Percent In July, From 8.6 Percent In June
For months, inflation has been at its highest level since 1997, when the euro hit a record high, prompting the European Central Bank to raise interest rates for the first time in 11 years last week to rein in prices.
The EURO economy managed to expand by 0.7 percent from April to July compared to the previous quarter, in contrast to a contraction in the United States, where fears of a recession are growing. The picture is equally bleak for Europe.
Economic growth linked to a recovery in tourism could be the latest glimmer of hopeful news, analysts say, as inflation, rising interest rates and a war-torn energy crisis loom over the euro zone later this year. I am expected to push into recession.
“This will be as good as it gets for the eurozone for the foreseeable future,” Andrew Cunningham, chief Europe economist at Capital Economics, wrote in an analyst note.
Growth in Germany, Europe’s traditional economic powerhouse, has already stalled due to continued cuts in Russian natural gas used for industry. France fended off recession fears by posting modest growth of 0.5% in the second quarter, while Italy and Spain beat expectations with expansions of 1% and 1.1% respectively.
Meanwhile, energy prices in the eurozone rose 39.7 percent this month, only slightly lower than in June due to gas supply concerns. Food, alcohol and tobacco prices rose 9.8 percent, higher than the previous month’s increase due to higher transportation costs, shortages and supply uncertainty from Ukraine.
“Another ugly inflation reading for July,” said Bert Colligen, senior eurozone economist at ING Bank, adding that there were no imminent signs of relief.
The United States also faces inflation, hitting a 40-year high, but unlike Europe, it has seen its economy shrink for two consecutive quarters. At the same time, the job market is stronger than it was before the COVID-19 pandemic and most economists, including Federal Reserve Chairman Jerome Powell, have said they do not think the economy is in a recession.
However, many are increasingly expecting the U.S. to enter a recession late this year or next, as has Europe.
EURO economy threat is largely linked to its dependence on Russian energy. With Moscow cutting the flow of natural gas that fuels factories, generates electricity and heats homes in winter.
Further cuts this week to Nord Stream 1, a major oil pipeline to Germany. Have raised fears that the Kremlin could cut off supplies entirely. That would force energy-dependent industries to ration and add to already record levels of inflation. Pushing up energy prices, pushing the 27-nation bloc into recession. There will be a risk of
While EU governments this week approved measures to cut gas consumption by 15 percent and approve tax cuts. And subsidies to ease the cost-of-living crisis. Europe is at the mercy of Russia and the weather. And it is on grace.
A cold winter, when demand for natural gas rises. Could reduce storage levels that governments are now scrambling to fill. But Russian cuts have made that more difficult.
“With gas supplies in the region now tight and inflation high for some time. The eurozone is likely to slip into recession”. Capital Economics assistant economist Michael Tran said in an analysis this week.
While the European Central Bank has begun raising rates to cool inflation. And is expected to hit another in September, it lagged behind other central banks. Such as the Fed and the Bank of England in making debt more expensive. Fearing the externalities of war-related high energy prices.
ING’s Colijn wrote that the impact of the ECB’s recent rate hike. On inflation was “very limited, although demand in the EURO economy has cooled further.”
With recession and inflation at new highs, the question is how the ECB will respond to an already cooling economy. He said.
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