.The possibility of a gas supply shutdown has become increasingly concerning to officials in Europe.
.Majority state-owned energy giant Gazprom of Russia shut off gas to Europe from its Nord Stream 1 pipeline to 20% of full capacity this week.
.A lot of economists think the euro zone will suffer a recession next year.
In the second quarter of the year, growth in the euro zone’s economy sped up, but then Russia cut its gas supplies and derailed the region’s growth prospects.
According to the EU’s statistics office, a group of 19 nations from Europe achieved an annualized growth rate of 0.7% in the second quarter, which outpaced forecasts for 0.2% growth. This follows a growth rate of 0.5% in the first quarter.
Despite the negative annualized readings out of the United States for both the first and second quarters, the euro zone continues to benefit from the reopening of its economy after the pandemic.
However, some economists are anticipating the euro zone to contract during the upcoming year, with Nomura, for example, forecasting a 1.2% annual decline and Berenberg suggesting a 1% reduction.
According to the European Commission, the executive arm of the EU, a recession could begin as early as this year if Russia completely cuts off the gas supplies to the region.
Russia denies it is threatening to weaponize its energy resources as European officials have expressed concern.
Despite this, Gazprom, the country’s biggest energy company, reduced gas supplies to Europe via the Nord Stream 1 pipeline by 20% this week. The gas supplies from Russia have already been disrupted in 12 EU countries, and a handful have been cut off entirely.
The European Commissioner for Economics, Paolo Gentiloni, says the latest GDP figures are good news.
Some uncertainty still remains for the upcoming quarters: [we] need to maintain unity and be ready to respond to an evolving situation as needed, he stated.
The GDP data comes at a time of inflation which is already high in the euro zone. In this month’s monetary policy announcement, the European Central Bank has hiked interest rates, making them higher than the US Federal Reserve’s in an effort to bring down consumer prices.
Meanwhile, the region’s rising inflation is being driven by the energy crisis, meaning further cuts to Russian gas supplies could push up prices even further.
Given the challenges to both European geopolitical and macroeconomic growth we’ve been experiencing lately, it’s wonderful to see that things are looking a little better than they were a few months ago, Rachel Barton, Accenture’s Europe strategy lead, said in an email.
though there is no saying for sure, it is clear that supply chain disruptions, soaring energy prices, and record-breaking levels of inflation will have a lasting impact.
According to Andrew Kenningham, chief Europe economist at Capital Economics, Friday’s GDP figure would mark “by far the best quarterly growth rate in a while.”
The fact that inflation was once again higher than expected only underscores how difficult the economy is going to be. We expect a recession to start this year,” he added.
Friday, Eurostat released revised inflation figures, putting annual inflation at 8.9% in July, up from 8.6% in June.