Growth in the eurozone economy accelerated in the second quarter of the year, but the region’s outlook is dimmed as Russia continues to cut gas supplies.
The 19-member bloc recorded a gross domestic product rate of 0.7% in the second quarter, according to Eurostat, the European statistics office, beating expectations for growth of 0.2%. It comes after a GDP rate of 0.5% in the first quarter.
The figures contrast sharply with negative annualized readings from the United States for the first and second quarters, as the euro zone continues to benefit from the reopening of its economy after the pandemic.
However, a growing number of economists expect the eurozone to slide into a recession next year, with Nomura, for example, forecasting a 1.2% annual contraction and Berenberg pointing to a 1% slowdown. .
Even the European Commission, the executive arm of the EU, has admitted that a recession could be on the cards – and as early as this year if Russia completely cuts gas supplies to the region.
European officials are increasingly concerned about the possibility of a gas supply shutdown, with European Commission President Ursula von der Leyen saying Russia is “blackmailing” the region. Russia has repeatedly denied that it is weaponizing its fossil fuel supplies.
However, Gazprom, the majority state-owned Russian energy giant, this week cut gas supplies to Europe through the Nord Stream 1 pipeline to 20% of full capacity. Overall, 12 EU countries are already suffering from partial gas supply disruptions from Russia, and a handful of others have been completely shut down.
EU Economics Commissioner Paolo Gentiloni said the latest growth figures were “good news”.
“Uncertainty remains high for the coming quarters: [we] must maintain unity and be ready to respond to a changing situation if necessary,” he said.
The GDP figures come at a time of record inflation in the euro zone. 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, soaring inflation in the region is being fueled by the energy crisis, meaning that further cuts in Russian gas supplies could drive prices up even further.
“Given the challenging geopolitical and macroeconomic factors that have played out over the past few months, it is positive to see the Eurozone growing, and at a faster pace than last quarter,” said Rachel Barton, head of Europe strategy for Accenture, in a press release. E-mail.
“However, it is clear that the continued supply chain disruption, rising energy prices and record levels of inflation will have a longer-term impact.”
Meanwhile, Andrew Kenningham, chief economist for Europe at Capital Economics, said Friday’s GDP figure would mark “by far the best quarterly growth rate in some time”.
“Indeed, the news that inflation was once again even higher than expected only underscores that the economy is heading for a very difficult time. We expect a recession to begin later this year. “, he added.
Eurostat also released revised inflation figures on Friday, putting annual inflation at 8.9% in July, down from 8.6% in June.