FRANKFURT – Euro-zone growth slowed in the first quarter, while inflation hit a new record high in April, according to data released by the EU statistics agency showed Friday stokes fears of stagflation.
Economic growth slowed to 0.2 percent in the quarter from 0.3 percent in the last three months of last year. At country level, GDP grew 0.3 percent in Spain and 0.2 percent in Germany, while France stagnated and Italy shrank.
Overall, after a broad rebound in 2021, GDP numbers point to a sharp slowdown across the eurozone. In the course of the year, growth in the euro zone increased by 5.0 percent.
Looking ahead, uncertainty caused by the war in Ukraine that started towards the end of the first quarter and rising inflation should continue to weigh on growth.
Inflation accelerated further to 7.5 percent in April from 7.4 percent in the previous month. The high prices continue to be driven primarily by energy costs, which have risen by 38 percent year-on-year. Core inflation, which excludes volatile food and energy factors, accelerated to 3.9 percent from 3.2 percent – suggesting high prices are becoming more entrenched.
Looking at the member states, the Baltic States were hardest hit. Prices rose by 19.0 percent in Estonia, by 16.6 percent in Lithuania and by 13.3 percent in Latvia.
In contrast, inflation in the largest member states remained relatively subdued. France was at the bottom with 5.4 percent. In Italy inflation was 6.6 percent, in Germany 7.8 percent.
With signs that rising prices are permeating the economy, there are growing concerns that spiraling inflation will increase pressure on the European Central Bank to tighten monetary policy. However, slowing economic growth complicates such a move, as tighter monetary policy risks stalling the post-pandemic recovery.
“Today’s data increases the pressure on the ECB to end its ultra-loose monetary policy,” said Commerzbank economist Christoph Weil. “Even the clear weakening of the economy does little to change that.”
“That means continued – albeit slowing – economic growth [the ECB] will likely act sooner rather than later,” agreed ING economist Bert Colijn, agreeing to wait much longer.”
Money markets are currently pricing in a 90 basis point rate hike before the end of the year, with the first rate hike in over a decade possibly as early as July.
This story has been updated.
https://www.politico.eu/article/eurozone-inflation-hits-fresh-record-as-growth-slows-in-first-quarter/?utm_source=RSS_Feed&utm_medium=RSS&utm_campaign=RSS_Syndication Eurozone inflation hits new record as growth slows in first quarter - POLITICO