Although prices rise, the eurozone's economy grows more quickly than anticipated

According to fresh data released on Friday, consumer price increases brought on by the rising cost of energy continued to have a negative impact on Europe, leading growth in the continent's traditional engine, Germany, to stop even while other sizable nations grew faster than anticipated.

Consumer prices increased 8.9 percent in July among the 19 nations that use the euro, setting a new record for inflation and marking the third consecutive month of increases.

According to official data issued by the European Union, the economies of the eurozone union expanded by 0.7 percent in the three months from April to June compared to the prior quarter. This growth was caused by the relaxation of coronavirus restrictions. As statisticians obtain more full data in the coming months, the estimates will be updated.

Germany, meanwhile, experienced economic stagnation in the second quarter as trade slowed and the nation struggled with the on-and-off supply of Russian natural gas. Germany still imports almost a third of its gas from Russia, and the country's economy has been particularly severely impacted by the country's war in Ukraine and the consequently high energy prices.

The newly released numbers emphasise the unpredictability of the European economy. A larger global downturn is being exacerbated by shocks from China's decline brought on by additional COVID-19 lockdowns and worries about a US recession after that country reported its second consecutive period of contraction this week.

The International Monetary Fund this week lowered its global growth expectations from its April projections, forecasting that output will fall to 3.2 percent in 2022 from 6.1 percent last year. The IMF described the prognosis for the world economy as "increasingly dismal."

In Europe, where Germany often drives growth, economies that are less dependent on Russian fossil fuels experienced better growth during the same period, thereby inverting the continent's economic story.

Economic growth in France, Italy, and Spain, all of which have robust tourism industries, exceeded analysts' predictions for the three months spanning April to June. The French economy rose by 0.5 percent from the first quarter, while Spain's economy increased by 1.1 percent and Italy's climbed by 1%.

The region with the highest price levels in July continued to be the Baltic nations, which initially saw double-digit inflation levels in March.

Germany's annual inflation rate jumped to 8.5% from 8.2% in June due to concerns that already record-high energy prices will continue to rise due to further reductions in Russian gas imports. The government's calls for energy conservation, these higher costs, and ongoing supply chain issues brought on the pandemic shutdowns have all put pressure on Germany's industrial sector.

The easing of limitations related to the coronavirus pandemic is projected to cause a slowdown in the recovery in services and tourism, which would in turn slow down economic growth in the eurozone. A recession might therefore be a possibility for Europe.

According to Bert Colijn, an economist with ING, "from this point, we expect GDP to continue a downward trend as the services sector bounce moderates, global demand slows, and purchasing power squeezes persist." We anticipate a moderate recession to commence in the second half of the year as a result.

The most recent data appeared to corroborate the Governing Council members of the European Central Bank's decision last week to take a decisive action to combat inflation by lifting each of its three interest rates by half a percentage point, the first hike in more than a decade.

The bank will likely hike rates once more at its upcoming meeting in an effort to rein in increasing prices, according to economists.

We anticipate another increase of half a percentage point when the bank meets again in September, according to Nicola Nobile of Oxford Economics. "With inflation not showing any signs of calming off in the medium term and with the economic outlook not yet derailing," she wrote.

Fresh data released on Thursday revealed that the U.S. economy contracted for the second consecutive quarter, igniting concerns that a recession may be on the horizon or has already started. Following a decrease of 0.4 percent in the first quarter, GDP declined by 0.2% in the second quarter. The Federal Reserve has increased its benchmark interest rate by three-quarters of a percent over the last two sessions in response to soaring inflation in the United States, and additional rises are anticipated.