Strong Rebound In Euro Zone But Inflation Above ECB Target

The euro zone economy put off a Covid-19 pandemic induced recession in the second quarter as it grew faster than expected with the easing of restrictions and curbs to stop the spreading of infections.  

However the inflation shot past the target of 2 per cent of European Central Bank in July.

A growth of 2.0 per cent quarter on quarter and 13.7 per cent year on year was recorded for the gross domestic product in the 19 countries that use the euro currency for the second quarter, according to the initial estimates of the European Union’s statistics office Eurostat.

Expectations of economists were at 1.5 per cent quarterly and a 13.2 per cent annual growth rate for the euro zone.

Italy and Spain, the third and fourth largest economies of euro zone, were among the outperformers, with quarterly growth respectively of 2.7 per cent and 2.8 per cent. The GDP of Portugal, heavily depended on tourism, expanded by 4.9 per cent during the period.

Two technical recessions were suffered by the euro zone since the beginning of the pandemic in early 2020. Technically a recession is recorded by two consecutive quarters of contraction. The quarters most recently hit by the pandemic include the period from the end of 2020 till the beginning of 2021.

The first three months of this year saw the GDP of the euro zone being dragged down by primarily by slowdown in Germany – the largest economy of Europe, where private consumption had been stunted by a lockdown from November. Germany returned to a growth path in the second quarter with a 1.5 per cent growth which was lower than what economists had been expecting.

With a growth rate of 0.9 per cent, French GDP, the second largest in the euro zone, just beat estimates as the country gradually eased a third lockdown form May.   

But new waves of infections are being faced by many euro zone countries because of the more transmissible Delta variant.

The inflation in the euro zone accelerated to 2.2 per cent in the second quarter – the highest rate of growth since October 2018, Eurostat also said, compared to 1.9 per cent June and above the 2.0 per cent estimates of economists.

The driving factor this time again was rise in energy prices which saw a 14.1 per cent year on year growth.

Prices rose 0.9 per cent year-on-year, the same as in June. without the volatile energy and unprocessed food components, or what the European Central Bank calls core inflation. Economists had expected a dip to 0.7 per cent.  

According to analysts, the ECB is not likely to be worried about the latest figures as the policy makers of the central bank had already issued warnings of a temporary rise in inflation and had clearly stated that no policy adjustments would be made by them because the one-off factors driving the inflation, such as higher oil prices, was likely to ebb away next year.

(Adapted from MoneyControl.com)



Categories: Economy & Finance, Geopolitics, Regulations & Legal, Strategy, Sustainability

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