Hassouna Al Tayeb (Abu Dhabi)
Aside from continuing inflationary pressures, the Eurozone is back on the path to growth, which supports the ECB’s argument for raising interest rates.
The gross domestic product of the euro area grew by 0.3% during the second quarter of this year 2023, compared to the first quarter, after declining during the previous two quarters, according to the Directorate General of the European Commission (Eurostat).
Meanwhile, consumer prices increased by about 5.3%, compared to the previous year 2022, as expected.
In an indication of the risks involved, the inflation index, which excludes food and energy prices, exceeded estimates, to remain at 5.5%, for the first time since 2021, according to the Financial Post.
German bunds remained among the most sensitive to changes in monetary policy on the decline, with the yield on the two-year debt rising by nearly 2 basis points, at 3.07%.
Growth power
While the Eurozone’s GDP ratio is encouraging, Ireland’s strong growth last quarter of 3.3% helped boost it.
The country accounted for less than 4% of the region’s GDP, with its contribution of 0.1% to growth during the second quarter of this year.
However, looking at the near future, the Central Bank warned that the picture will be darker after it raised interest rates for the ninth time since July of 2022. Consumer confidence indicators also began to enter the danger zone. After a year of stagnation in the industrial sector, the service sector also began to decline, a trend that may accelerate once the summer tourism season ends.
Corporate demand for loans recorded a record decline, while signs of weakness began to prevail in the investment and real estate sectors.
Germany’s economy
Germany’s economy, the largest in the eurozone, is suffering from the specter of slow growth during the second quarter, especially as it has just emerged from a 6-month recession.
After announcing a decline in production rates in the second quarter of this year, German companies working in the chemical industry, such as BASF, Hamburger Haven and Bayer, warned of a future that might be full of suffering.
With the deposit rate at 3.75%, the ECB is nearing, or has already reached, the end of its rate hikes.
Central Bank Chair Christine Lagarde reiterated her message that perhaps in this unstable environment, another increase or a truce are the options available for the next policy decision in September.
The latest eurozone inflation and GDP figures put both options on the table – the economy has not yet fallen, while core inflation remains holding.
The latest figures in Italy indicate a decline in GDP between April and June, while domestic demand fell. However, both France and Spain managed to achieve strong growth in the same period.
2023-08-04 21:22:59
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