Eurozone growth and inflation pick up, but recession looms in the second half of the year

BRUSSELS/FRANKFURT — The eurozone economy grew much faster than expected in the second quarter, but economists said it was ahead of record-high inflation and supply chain problems causing a mild recession in the second half of the year. He said it could be the last big bang for the economy.

Consumer and business sentiment plummeted due to high inflation and fears of a gas crisis sparked by the war in Ukraine, economists said.

Eurozone gross domestic product grew 0.7% quarter-on-quarter and 4.0% year-on-year in the April-June period, up 0.2% quarter-on-quarter and 3.4% year-on-year, according to the EU Statistics Office. It was much better than expected.

Meanwhile, inflation hit a record high again in July and its peak may still be months away, putting pressure on the European Central Bank to opt for another significant rate hike in September. increase.

Consumer price inflation in the 19 countries that share the euro currency accelerated to 8.9% in July, well above expectations of 8.6% from 8.6% the previous month and well above the ECB’s 2% target, it said. Eurostat said.

“The acceleration in economic growth is largely due to reopening effects, masking underlying weakness from high inflation and manufacturing problems,” said ING economist Bert Collin.

“Going forward, we expect GDP to continue to trend downward as the rebound in service restarts eases, global demand softens, and pressure on purchasing power continues. I expect it. “

Germany’s weak performance has led to much better-than-expected expansion in the rest of the bloc, with France growing by 0.5%, Italy by 1.0% and Spain by 1.1% in the quarter. Was offset by.

Accenture European Economist Rachel Burton said:

Good growth in the Eurozone in the second quarter and rising inflationary pressures have increased the likelihood that the ECB will raise interest rates by another 50 basis points in September.

“With inflation showing no signs of cooling in the near term and the economic outlook not yet out of whack, we expect the ECB to rise another 50 basis points in September,” said Nicolas Nobile of Oxford Economics. rice field.

The war in Ukraine is looming over all European economies. Uncertainty about the outcome of the conflict has eroded consumer and business confidence, but fears remain that a complete cut off of Russian gas supplies could plunge the bloc into a deeper recession.

By Jan Strupczewski, Balazs Koranyi