Eurozone economy shrinks as price pressures ease

Growth in the eurozone contracted unexpectedly this summer, as it did Higher interest rates have slowed momentum in Germany and France, the region’s two largest economies, the European statistics agency reported on Tuesday.

The contraction reflects the challenges facing policymakers at the European Central Bank, who last week halted their campaign to raise interest rates to fight inflation amid signs of weakness in the region’s economy. The data showed that the euro zone inflation rate in October fell to 2.9 percent, another sign of the impact of the central bank’s interest rate hikes.

Economic output in the twenty countries that use the euro It decreased by 0.1 percent between July and September, reversing slight growth gains in the second quarter and continuing nearly a year of tepid economic activity. Compared to last year, economic growth increased by only 0.1 percent.

The anemic pace of growth in Europe contrasts sharply with the United States, where the economy rose despite a sharp rise in interest rates by the Federal Reserve to curb inflation. GDP expanded by 1.2% between the second and third quarters, supported by massive consumer spending and slowing inflation, which raised purchasing power.

While the European economy is weakening, there is no severe recession on the horizon, analysts at ING said in a note to clients. “However, continued economic and geopolitical uncertainty coupled with the impact of rising interest rates on the economy will impact economic activity in the coming quarters,” the bank said.

The European Central Bank has raised interest rates almost simultaneously with the Federal Reserve to combat high inflation caused by Russia’s war in Ukraine. The European Central Bank paused earlier this month amid signs the fight was starting to bear fruit.

The statistics agency said on Tuesday in a separate statement that consumer prices in the euro zone rose 2.9 percent In the year to October, down from a rate of 4.3% the previous month and the lowest since July 2021. Although well below the 10% increases a year ago, inflation in Europe remains high overall, especially for food and energy, Which makes consumers wary. About spending.

These high interest rates also suppressed activity among households and businesses by raising lending rates. In some cases, they added pain to existing problems.

Germany, Europe’s largest economy, contracted by 0.1 percent in the third quarter. The country’s energy-intensive industrial sector is still suffering from a price shock following the cessation of natural gas flows from Russia to Germany, which led to higher inflation and curbed consumer spending.

The French economy also lost momentum, expanding by 0.1 percent after a growth spurt in the second quarter. Consumers increased their spending, but the slowdown in the global economy negatively affected French manufacturers, who saw demand for their exports decline. Growth in Italy also stagnated.

The eurozone’s overall performance was somewhat skewed by a significant decline in growth figures in Ireland, a major exporter of medicines, where exports of pharmaceutical products have declined since the end of pandemic lockdowns. Growth in Ireland contracted by 1.8 percent in the summer compared to the previous quarter.

However, growth in Europe remains tepid and is struggling to recover from the recession that began at the beginning of the year. In a press conference this month, International Monetary Fund He said Europe was “at a turning point.” The region has weathered a series of shocks, including the pandemic and the energy crisis caused by the Russian invasion of Ukraine.

More people have jobs and wages are rising to keep up with inflation. The IMF said food and energy prices remain relatively high, a risk that appears likely to continue to weigh on growth.