FRANKFURT, Germany (AP) – Europe’s economy will still fail to expand at the end of 2023, remaining stagnant for more than a year amid soaring energy prices, soaring credit prices and an economic downturn in once-powerhouse Germany.
The economy grew at zero in the October-December period last year, following a 0.1% contraction in the previous three months, according to figures released by the EU’s statistics agency Eurostat on Tuesday.
It is the continuation of a devastating economic recession. The 20 countries that use the euro currency have not shown significant growth since the third quarter of 2022, when their economic growth rate was 0.5%.
And things don’t look good at the start of the year, with indicators of business activity still flashing red, indicating contraction. Additionally, disruptions to shipping in the Red Sea could reduce global trade through the Suez Canal, a key route between Asia and Europe, raising shipping costs and raising inflation.
New figures highlight widening disparities between Europe and the United States, with economic growth in the fourth quarter at 0.8% compared with the previous three months, and at an annualized rate of 3.3%. It exceeded my expectations.
The eurozone grew by 0.5% for the year, while the US grew by 2.5%. The International Monetary Fund on Tuesday raised its outlook for this year’s global economy, forecasting U.S.-led global economic growth of 3.1%, but cut its forecast for the euro zone to just 0.9% expansion.
The big picture is that eurozone GDP has remained flat since the third quarter of 2022, when gas prices soared and the ECB started raising interest rates,” said Capital Economics’ deputy chief eurozone economist. Jack Allen Reynolds said in a written analysis.
Not all news is bad. For one thing, the unemployment rate is at a record low and employment numbers rose in the July-September period.
Energy prices have also fallen due to recent spikes and are still higher than before Russia invaded Ukraine, but storage levels of natural gas used to heat homes, power factories and generate electricity are strong. With gas storage 72% full and the winter heating season almost over, fears of rising utility costs and a new energy crisis have eased.
While the economy has stagnated, inflation has also fallen rapidly from painful double-digit peaks to 2.9% in December. But people’s wages and purchasing power have not yet caught up with the levels lost to soaring prices.
French farmers seeking better wages, fewer restrictions and lower costs are believed to have set up barricades around Paris this week.
On the other hand, the anti-inflationary drugs (rapidly rising interest rates) applied by the European Central Bank have suppressed business investment and real estate activities such as construction and home sales.
Germany’s economy, Europe’s largest, shrinkshttps://t.co/3mA4ofQ1q2
— Breitbart London (@BreitbartLondon) January 16, 2024
Germany, Europe’s largest economy, shrank by 0.3% in the fourth quarter. Once a paragon of growth, Germany was one of the worst performers among major developed countries last year.
It is stuck on multiple issues, including soaring fuel prices for energy-intensive industries after Russia cut off most natural gas to the continent. Germany has also been held back by a lack of skilled labor and a longstanding lack of investment in infrastructure and digital technology in favor of balanced budgets.
Future figures for Europe “do not suggest a significant improvement” and may suggest some contraction in the first three months of the year, but the eurozone is expected to recover consumer purchasing power. should benefit from lower inflation and expected lower interest rates. According to economists at Oxford Economics.
Some analysts expect the ECB to cut interest rates as early as April, while others think the ECB may wait until June to ensure inflation is under control.
But risks remain, including attacks by Yemen’s Houthi rebels on ships in the Red Sea, through which 12% of global trade passes, amid a war between Israel and Hamas.
Shipping costs are rising as shipping companies route their ships mainly around the southern tip of Africa, and voyages are taking more than a week. Rising transportation costs and delays for products ranging from clothing to keyboard parts raise concerns about another spike in consumer prices if the conflict in Gaza drags on or intensifies.
Oxford Economics said the trade disruption could push up core inflation, which excludes volatile fuel and food prices, by up to 0.5%. Core inflation is closely monitored by the ECB.
“We believe the impact on core inflation is sufficient for the ECB to wait a little longer,” analysts at Oxford Economics said in a note, adding that they would postpone the rate cut until June.
European Union’s economic outlook worsens due to inflationhttps://t.co/bb8sZpsC3n
— Breitbart London (@BreitbartLondon) September 11, 2023
