Growth slows and prices rise as stagflation stalks eurozone

Development within the eurozone economic system weakened in the course of the first quarter whereas inflation inched as much as a brand new file in April, elevating the spectre of stagflation in a area blighted by hovering vitality and meals costs.

Gross home product within the 19 international locations that share the euro grew 0.2 per cent within the first three months of the 12 months, in contrast with 0.3 per cent within the earlier quarter, Eurostat stated on Friday. Economists polled by Reuters had on common forecast development within the bloc to stay secure.

France’s economic system stagnated within the first quarter whereas Italian output contracted. The Spanish economic system additionally misplaced tempo. Germany was the one one of many 4 greatest EU economies to beat expectations, because it posted meagre development of 0.2 per cent from the earlier three months.

Inflation within the eurozone was 7.5 per cent within the 12 months to April, up from a file excessive of seven.4 per cent within the earlier month, Eurostat stated in a separate launch. Power costs rose 38 per cent, whereas unprocessed meals costs jumped 9.2 per cent. Core inflation, excluding vitality and gas, elevated to three.5 per cent, up from 2.9 per cent.

The information present that worth pressures proceed to construct within the eurozone, maintaining inflation nicely above the European Central Financial institution’s 2 per cent goal and feeding requires it to speed up plans to reverse its ultra-loose financial coverage.

“For the ECB, the continued — albeit slowing — financial development implies that it’s prone to act sooner slightly than later,” stated Bert Colijn, an economist at ING, forecasting that the central financial institution may increase rates of interest in July if the financial outlook doesn’t worsen, whereas including “that’s an enormous if”.

Russia’s invasion of Ukraine has clouded the outlook for Europe’s economic system. Economists worry an escalation of western sanctions on Moscow dangers resulting in shortages of oil and gasoline that may hit business onerous and ship vitality costs even larger, eroding family revenue and sapping client and enterprise confidence. Russia has already lower off gasoline provides to Poland and Bulgaria.

“We expect eurozone GDP is prone to contract within the second quarter as fallout from the Ukraine conflict and surging vitality costs take an growing toll on households’ actual incomes and client confidence in addition to exacerbating supply-side issues,” stated Andrew Kenningham, an economist at Capital Economics.

The eurozone’s 0.2 per cent first-quarter development compares favourably with a 0.4 per cent contraction within the US economic system, brought on by a record-high commerce imbalance and weaker stock development that offset larger spending by shoppers and companies within the interval. However it lagged behind a 1.3 per cent enlargement in China’s economic system over the opening three months of the 12 months.

Hovering client costs, continued pandemic restrictions and the fallout from the Ukraine conflict all took their toll on financial exercise within the first three months of this 12 months. Italy’s economic system shrank 0.2 per cent, whereas Spanish development slowed to 0.3 per cent. The strongest performers have been Portugal and Austria, the place output expanded by 2.6 and a couple of.5 per cent respectively.

The flatlining of French GDP within the first quarter marks a pointy slowdown from the upgraded 0.8 per cent development price within the ultimate three months of final 12 months. Economists had anticipated French first-quarter development of 0.3 per cent.

The French nationwide statistics workplace stated output was hit by a 1.3 per cent fall in family spending, which offset the constructive impression from larger funding, commerce and inventories.

Germany’s 0.2 per cent rise in first-quarter GDP marked a rebound from a 0.3 per cent contraction within the earlier quarter, which means Europe’s largest economic system prevented a technical recession, outlined as two consecutive quarters of adverse development. Economists on common anticipated first-quarter German development of 0.1 per cent.

The federal statistical company stated the enlargement of the economic system was “primarily due” to larger funding, whereas commerce had a adverse impression on development. It stated GDP was nonetheless 0.9 per cent under its pre-pandemic degree within the ultimate quarter of 2019 and warned the Ukraine conflict was having “a rising impression on the short-term financial improvement”.

Italy’s 0.2 per cent drop in GDP partially reversed the 0.6 per cent enlargement within the earlier quarter and left total output 0.4 per cent under pre-pandemic ranges, in line with the workplace for nationwide statistics. The contraction was in step with analysts’ expectations.

Spanish quarterly GDP development of 0.3 per cent was a marked slowdown from the two.2 per cent enlargement between the third and fourth quarter of final 12 months. It additionally undershot the 0.5 per cent enlargement forecast by economists polled by Reuters.

Nadia Calviño, Spain’s economic system minister, slashed the federal government’s development forecast for this 12 months on Friday from 7 per cent to 4.3 per cent.