Growth in the eurozone unexpectedly slowed this summer Rising interest rates have cooled momentum in Germany and France, the region’s two largest economies, Europe’s statistics agency reported Tuesday.
The slowdown reflected the challenges facing policymakers at the European Central Bank, which last week halted its campaign to raise interest rates to fight inflation amid signs the region’s economy is weakening. The eurozone inflation rate eased to 2.9 percent in October, data showed, in another sign of the impact of the central bank’s higher interest rates.
Economic output in the 20 countries that use the euro currency declined by 0.1 percent Between July and September, the weak growth rate in the second quarter reversed and extended nearly a year of sluggish economic activity. Economic growth increased only 0.1 percent compared to a year ago.
Europe’s weak growth pace stands in sharp contrast to the United States, where the economy has boomed despite massive interest rate hikes by the Federal Reserve to tame inflation. Gross domestic product grew by 1.2 percent between the second and third quarters, driven by strong consumer spending and slowing inflation, which led to increased purchasing power.
Although Europe’s economy is weakening, no sharp recession is in sight, ING Bank analysts said in a note to clients. “Nonetheless, the impact of higher rates on the economy as well as continued economic and geopolitical uncertainty will weigh on economic activity in the coming quarters,” the bank said.
The ECB has joined the Fed in raising interest rates to tackle skyrocketing inflation stemming from Russia’s war in Ukraine. The ECB imposed the freeze earlier this month amid signs the fight was beginning to have an impact.
In a separate release on Tuesday, the statistics agency said consumer prices in the eurozone increased by 2.9 percent In the year through October, down from a rate of 4.3 percent last month and the lowest since July 2021. Although well down from double-digit growth a year ago, inflation in Europe remains high overall, particularly for food and energy, causing consumers to become cautious about spending.
And those higher interest rates have also curbed activity among households and companies by driving up lending rates. In some cases, they expressed more sadness over existing problems.
Germany, Europe’s largest economy, contracted 0.1 percent in the third quarter. The country’s energy-intensive industrial sector is reeling from price shocks after natural gas flows from Russia to Germany were cut off, causing inflation and curbing consumer spending.
The French economy also lost momentum, expanding 0.1 percent after growth accelerated in the second quarter. Consumers increased spending, but the slowdown in the global economy hit French manufacturers, who saw demand for their exports decline. Development stopped in Italy also.
The eurozone’s overall performance was somewhat dampened by a dramatic decline in growth data from Ireland, a major exporter of medicines, where exports of pharmaceutical products have been falling since the end of pandemic lockdowns. Ireland’s growth declined by 1.8 percent in the summer compared to the previous quarter.
Still, growth in Europe remains slow and is struggling to recover from a stagnant start to the year. At a briefing this month, International Monetary Fund He said Europe is “at a turning point.” The region has faced several shocks, including the pandemic and an energy crisis triggered by Russia’s invasion of Ukraine.
More people have jobs and wages are increasing to keep up with inflation. But food and energy prices remain relatively high, the IMF said – a risk that is likely to continue to weigh on growth.