Growth in the euro zone in the third quarter of 2022 is set at 2.3%, while in the European Union it is 2.5% according to data announced today by Eurostat.
In the third quarter of 2022, seasonally adjusted GDP increased by 0.3% in the euro area and by 0.4% in the EU, compared to the previous quarter.
Ireland (+2.3%) recorded the largest increase in GDP compared to the previous quarter, followed by Cyprus, Malta and Romania (all three +1.3%). The highest decreases were observed in Estonia (-1.8%), Latvia (-1.7%) and Slovenia (-1.4%).
Components of GDP and contribution to growth
In the third quarter of 2022, household final consumption expenditure increased by 0.9% in the euro area and by 0.7% in the EU (after +1.0% in the euro area and +0.9% in EU in the previous quarter).
Consumer spending rose by 0.1% in both the euro area and the EU. Exports rose by 1.7% in the euro area and by 1.9% in the EU, and imports by 4.3% in the euro area and by 4.0% in the EU.
Household final consumption expenditure had a positive contribution to GDP growth in both the euro area and the European Union (+0.4 percentage points in both areas).
Increasing employment in the euro area and the EU
The number of people employed increased by 0.3% in the euro area and by 0.2% in the EU in the third quarter of 2022, compared to the previous quarter. In the second quarter of 2022, employment had increased by 0.3% in both the euro area and the EU.
Compared to the same quarter last year, employment increased by 1.8% in the euro area and by 1.5% in the EU in the third quarter of 2022, after +2.6% in the euro area and +2 .4% in the EU in the second quarter of 2022.
The black script
Europe is facing a toxic mix of weak growth and high inflation that could worsen, dealing with the impact of the war in Ukraine. This was recently highlighted by the head of the IMF’s European department, Alfred Kammer, who is in favor of continuing to raise interest rates by the European Central Bank and tightening the EU’s macroeconomic policies to reduce inflation, while helping vulnerable households and sustainable businesses to face the energy crisis.
Keeping with the latest World Economic Outlook forecasts, the IMF estimates that Europe’s developed economies will grow by just 0.6% next year, while emerging economies (excluding Turkey and conflict-affected countries, Belarus, Russia, Ukraine) will grow by 1.7%. This is a 0.7 p.m. downgrade from July forecasts. and 1.1 am respectively.
The forecast for growth and inflation
This winter, more than half of the euro area countries will experience a technical recession, meaning at least two consecutive quarters of GDP contraction. In these countries GDP will fall, on average, by about 1.5% from the peak level. Croatia, Poland and Romania will also experience a technical recession, with an average production decline of more than 3%. Next year, Europe’s output and income will be nearly half a trillion. euros lower than pre-war IMF forecasts – clearly reflecting the economic fallout from the war.
And while inflation is forecast to ease next year, it will remain well above the central bank’s targets, at around 6% and 12% respectively, in advanced and emerging European economies.
In fact, as Kammer points out, growth and inflation could turn out to be even worse than these already ominous forecasts.
Energy crisis
On the EU’s response to the energy crisis, the IMF says policymakers have responded quickly and built up sufficient gas reserves in the face of increased winter heating demand, but warns that further disruptions in energy supplies could lead to to a greater economic blow.
IMF scenarios show that a complete stoppage of Russian gas flows to Europe, combined with a particularly cold winter, could lead to shortages, gas supply slips and GDP losses of up to 3% in central and Eastern economies. Moreover, it could also lead to another period of soaring inflation across the continent.
The worst is yet to come
As for the outlook, there was a common feeling that “the worst is yet to come”, while a mild recession in the US, a deeper one in Europe and a contraction in growth in China were all the basic scenarios. There was also broad agreement on the factors leading to a recession: the war in Ukraine and sanctions, the war against the inflation “monster” by most central banks, and the war against COVID-19 in China. In addition, risks are believed to have increased: fears of a (nuclear) escalation of the war in Ukraine were evident, as were concerns about intensifying trade and technological tensions between the US and China. Also, concerns that central banks would be forced to raise interest rates too much to fight inflation were constantly on the table.
