The euro zone economy returned to growth in the second quarter after months of stagnation

Workers assemble vehicles on the assembly line of the SEAT car factory in Martorell, near Barcelona (REUTERS/Albert Gea) (Albert Gea/)

The economy of the eurozone grew modestly in the last trimester after months of stagnation or contraction, while interest rate hikes designed to combat the inflation made the debt more expensivethe investment and the spent for homes and businesses.

The 20 countries that use the euro and its 346 million inhabitants they registered a 0.3% growth between April and June, the EU statistics agency said on Monday, Eurostat. It was an improvement from zero in the first quarter of the year and the slight decline in the last quarter of last year, but not by much.

A revision lifted the first-quarter numbers from a contraction of 0.1%, erasing a record of two straight quarters of decline. The inflation in the euro area, for its part, continued its gradual decline and fell to 5.3% in July, from 5.5% in June.

European economic growth received a boost with the 0.5% growth in France and of the 0.4% in Spain, while lower inflation has helped bolster consumer spending power.

Shoppers carry bags as they walk through a busy shopping street in Hamburg, Germany (REUTERS/Fabian Bimmer)
Shoppers carry bags as they walk through a busy shopping street in Hamburg, Germany (REUTERS/Fabian Bimmer) (FABIAN BIMMER/)

However, the French figure was boosted by a one-off event: the delivery of a single large manufactured object, a cruise. That statistical anomaly improved France’s growth rate but did little to mask weak demand for goods in the eurozone’s second-biggest economy.

The largest growth was recorded in Irelanda 3.3%. The country’s growth figures often show wide variations due to large international companies setting up their headquarters there.

The largest economy in the eurozone, Germanyhad problems in the second quarter and his growth went to zero after two straight quarters of contraction, while grappling with high energy costs associated with the war in Ukraine.

Impact of the war in Ukraine

Europe continues to deal with the effects of the Russian invasion of Ukrainewhich has meant cutting off most of the flow of russian natural gas to the continent, which triggered the prices of that fuel and the electricity it produces. In Germany, the bloc’s manufacturing powerhouse, Vice Chancellor and Economy Minister robert habeck has proposed to introduce limits to energy prices for industry with help from the government.

German Minister for Economic and Climate Protection Robert Habeck (in orange) during his visit to the ThyssenKrupp steel plant in Duisburg, Germany (REUTERS/Wolfgang Rattay)
The German Minister for Economic and Climate Protection, Robert Habeck, (in orange) during his visit to the ThyssenKrupp steel plant in Duisburg, Germany (REUTERS / Wolfgang Rattay) (WOLFGANG RATTAY /)

worst of price spike It has passed, but the costs are still higher than before the war. Energy is no longer a major driver of inflationbut the Europeans run into high prices when they buy food, garments and other products. Meanwhile, the rebound of service companies such as hotels and restaurants that suffered during the COVID-19 pandemic it has been maintained for the most part.

It was expected that tripsespecially in the Mediterranean countries where tourism is a major driver, will fuel growth in the third quarter, when many people spent their summer vacations in Greece, Spain and Italydespite recent heat waves and forest fires.

For the rest, the forecasts for the rest of the year were discreet.

High interest rates slow down the recovery

The president of the European Central Bank Christine Lagarde (REUTERS/Kai Pfaffenbach/file)
The president of the European Central Bank Christine Lagarde (REUTERS/Kai Pfaffenbach/file) (KAI PFAFFENBACH/)

Other drag on the economy was the rapid succession of interest rate hikes introduced by the European Central Bank to contain inflation.

The ECB imposed its ninth straight increase on Thursdayraising its reference rate for deposits from -0.5% to 3.75% in just one year, a record pace since the creation of the euro in 1999. That has raised the mortgage installments and provoked construction project cancellations due to too expensive or unavailable credit.

The central bank lending survey showed the lower level of business loans and credit lines since the statistics began in 2003. ECB President, christine lagardeHe did not confirm whether the bank would continue raising rates at its next meeting on September 14, saying the decision would depend on the next inflation data.

Since the rises began, inflation has fallen steadily from a peak of 10.6% in October to 5.5% in June, still above the ECB’s 2% target. Bank officials say tough measures now will prevent an even more painful credit squeeze in the future if inflation gets out of control.

(With information from AP)

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