Eurozone inflation reached 8.9 percent in July compared to a year ago, when prices, driven by high energy costs, hit a new record and many of the largest economies grew faster than expected in the second quarter, with the exception of Europe’s traditional engine, Germany, which came to a halt.
Prices in the 19 countries that use the single European currency rose from the 8.6 percent they reached in June. Their economies grew 0.7 percent in the three months from April to June from the previous quarter, official figures released Friday showed.
Germany, Europe’s largest economy, stagnated in the second quarter as trade slowed and the country struggled with supplies and deliveries of natural gas from Russia, which accounts for nearly a third of all German gas used.
Elsewhere in Europe, countries whose economies were not as heavily reliant on fossil fuels from Russia saw stronger growth over the same period, effectively flipping the scenario towards Europe’s economic narrative, where Germany acts as the engine for growth.
France, Italy and Spain – all countries with strong tourism sectors – saw economic growth that exceeded analysts’ expectations in the three months from April to June. The French economy grew 0.5 percent compared to the first quarter, while that of Italy grew by 1 percent and Spain’s by 1.1 percent.
On Thursday, Germany reported that annual inflation rose to 8.5 percent in July, from 8.2 percent a month earlier, as further cuts in the supply of natural gas from Russia raised concerns that already record energy prices will rise further.
The latest figures appeared to support last week’s decision by members of the Governing Council of the European Central Bank to take a bold step to tackle inflation by raising the three interest rates by half a percentage point, the first increase in more than ten years.
Economists expect the bank to raise interest rates again at its next meeting in a bid to contain rising prices, amid growing concerns about an economic slowdown.
“As inflation shows no signs of cooling in the near term and the economic outlook is not yet derailed, we expect a fresh increase” of half a percentage point when the bank meets again in September, Nicola Nobile of Oxford Economics said in a note.
On Thursday, new data showed that the US economy contracted for the second consecutive quarter, raising fears that the country might slip into recession – or may have already begun. GDP fell 0.2 percent in the second quarter, followed by a 0.4 percent decline in the first quarter. With inflation in the United States also soaring, the Federal Reserve has raised its key interest rate by three-quarters in its past two meetings, and more hikes are expected.
