EU’s lower-than-expected growth figures hint at impending recession

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GDP in the European Union (EU) and the Euro zone grew by 0.6 percent between the months of April and June this year, according to a flash estimate produced by the EU’s statistical office, Eurostat. This represents a slight downward revision from the preliminary estimate released a month ago, and many analysts predict the European economy will begin contracting by the end of the year.

Europe is the region the most directly affected by fallout from Russia’s invasion of Ukraine.

Aside from sharing thousands of miles of land borders, Europe has long been dependent on Russian imports of crude oil and natural gas, whose prices have soared as a result of sanctions.

During the second quarter of 2022, economic output across the 19 countries that use the Euro as their currency – the Euro zone – increased by just 0.6 percent, down from the 0.7 percent forecast just a month ago.

For the EU as a whole, GDP also grew by 0.6 percent, according to data released by Eurostat today.

A year ago, during the same quarter, seasonally adjusted GDP went up by 3.9 percent in the Euro area and by four percent in the EU, as the bloc emerged from the pandemic.

In the first quarter of 2022, GDP grew by 0.5 percent in the euro area and by 0.6 percent in the EU.

Although these figures remain positive, the ongoing supply-chain and energy crises, as well as the rampant inflation they are causing, have led many to suggest Europe is hurtling towards a recession. 

Released in July, the European Commission’s Summer 2022 Economic Forecast projected growth of 2.7 percent for the EU economy in 2022, and 1.5 percent in 2023.

Vital gas supplies through the Nord Stream 1 pipeline from Russia to Germany have now been reduced to 20 percent of their pre-invasion level.

The European Commission joined a growing number of economists in warning of a recession in late 2022 if gas supplies were to be cut off completely.

Paolo Gentiloni, Commissioner for Economy said: “In Europe, momentum from the reopening of our economies is set to prop up annual growth in 2022, but for 2023 we have markedly revised down our forecast.

“With the course of the war and the reliability of gas supplies unknown, this forecast is subject to high uncertainty and downside risks.”

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Record 39.7 percent energy price inflation for the EU on the year, is said to be the driving force behind the bloc’s 8.9 percent inflation announced for July, up from 8.6 percent in June, according to Eurostat.

The Baltic countries, sharing a land border with Russia, have seen prices rise at a higher rate than any others in the EU, Estonia reporting 22 percent, Lithuania 20.5 percent and Latvia 19.2 percent.

Many Eastern European countries follow, such as the Czech Republic (16.6 percent), Poland (14.2 percent) and Hungary (12.6 percent). 

Western Europe has performed marginally better, yet also faces some of its highest rates of inflation in decades. 

Sharply rising prices mean consumers are able to spend less on goods and services in the economy, raising the risk of recession even further.

The EU and Euro zone’s second quarter growth was primarily driven by Spain’s relatively strong 1.1 percent increase in GDP during the quarter, and Italy’s one percent.

In contrast, the German economy, the largest in the bloc, stagnated, reporting zero percent growth for the quarter, dragging the EU average down considerably.

Latvia, Lithuania, Poland and Portugal all saw their economies contract during the three-month period.

Last week, the Office for National Statistics (ONS) revealed UK GDP had fallen by 0.1 percent during the April to June quarter, while US GDP fell by 0.2 percent during the same period.

The International Monetary Fund (IMF) World Economic Outlook Update released in July, entitled Gloomy and More Uncertain, predicted global economic growth would slow to 3.2 percent this year, down from 6.1 percent in 2021.

The report said: “The risk of recession is particularly prominent in 2023, when in several economies growth is expected to bottom out, household savings accumulated during the pandemic will have declined, and even small shocks could cause economies to stall.”

On July 26, the EU renewed its economic sanctions on Russia until January 31, 2023.

Since then ​​the European Central Bank has forecast the bloc’s inflation rate to average 6.8 percent for 2022, falling to 3.5 percent for 2023 and 2.1 percent in 2024.

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