Rising prices, declining consumer confidence linked to the war in Ukraine and ongoing supply chain disruptions have slowed growth in much of Europe and raised concerns about the region’s recovery from the pandemic.
The 19 countries that use the euro saw their economies grow by just 0.2 percent in the first three months of the year compared to the previous quarter, Eurostat, the statistics office of the European Union, reported Friday.
“Obviously the picture for the first quarter is one of fairly weak growth,” said Ángel Talavera, head of European economics at Oxford Economics. “Consumer confidence has dropped quite a bit everywhere,” he noted, adding that household spending slowed as wages failed to keep pace with inflation, particularly in food and energy.
Figures for gross domestic product, the broadest measure of economic output, varied across the eurozone. Germany, Europe’s largest economy, reported GDP growth of 0.2 percent for January, February and March compared to the previous three months, bringing annual growth to 4 percent.
“The economic fallout from the war in Ukraine has had an increasing impact on short-term economic development since the end of February,” Germany’s federal statistics office said in a statement.
The Spanish economy grew by 0.3 percent in the first quarter, although the improvement was much smaller than the 2.2 percent recorded in the last quarter of 2021.
In France, where Covid restrictions remained in place for much of the first quarter, growth stalled. In Italy, real GDP fell by 0.2 percent compared to the previous three months.
Inflation was a persistent thorn, rising to 7.5% yoy in the eurozone in April, from 7.4 percent in March, Eurostat said.
Inflation is “stubbornly high,” said Melanie Debono, Europe’s senior economist for Pantheon Macroeconomics. Food and other prices rose sharply. While energy prices fell 3.7 percent this month, they are still more than a third higher than last year. “There is a pressure on real household incomes,” she said.
Ms. Debono expects growth to pick up over the next three months as pandemic-related restrictions ease and activity in the services sector picks up. Still, the outlook for the rest of the year is bleak.
Risks, in particular those related to a potential energy embargo and other disruptions resulting from the Russian invasion of Ukraine, have increased. This week, Russia halted gas supplies to Poland and Bulgaria. At the same time, the European Union is getting closer and closer to an agreement to stop the flow of Russian oil.
The impact of an abrupt shutdown of the German energy supply has led to significant debts. The Bundestag, the country’s central bank, recently warned that a gas embargo would plunge the country’s economic output by as much as 5 percent this year.
Some economists have come up with a more optimistic estimate, but Ms. Debono of Pantheon said a gas embargo would almost certainly plunge Germany into recession and likely “drag the rest of Europe down.”
The average growth of the 27 countries that make up the European Union was 0.4 percent in the first three months of 2022, according to Eurostat, twice as much as reported for the eurozone.
The US economy, on the other hand, shrank by 0.4 percent in the same period. Still, analysts were more optimistic about the outlook for the US economy, noting that consumer spending remained strong despite high inflation. Resilient demand in the United States compared to the rest of the world made the numbers look slightly worse: America’s appetite for imports far outstripped exports to other countries. The resulting trade deficit pushed GDP down
China, despite widespread lockdowns, reported 1.3 percent growth in its quarterly growth.
Within Europe, the economies of Portugal, Austria and Latvia all grew by more than 2 percent in the first quarter, while Sweden recorded the worst performance, declining 0.4 percent.
Intense uncertainty has led to concerns about the global economy. Last week, the International Monetary Fund revised its growth estimate to 3.6 percent from the 4.4 percent it forecast in January. The eurozone growth forecast was bleaker, falling 1.1 percent to 2.9 percent for the year.
The Russian invasion of Ukraine “will have serious economic consequences for Europe as it struck while the recovery from the pandemic was still incomplete,” the IMF said in its latest regional outlook. “The war has led to large increases in commodity prices and exacerbated supply-side disruptions, which will further fuel inflation and reduce household incomes and corporate profits.”