With Recession Looming, Big European Economies Still Show Some Growth

The German economy expanded modestly over the summer, defying expectations that it would slide into a recession, but several other big European countries reported slowing economic growth on Friday, an ominous sign as fresh data on inflation showed relentless price rises on the continent.

Europe’s largest economy, Germany, surprised economists by expanding 0.3 percent in the July-to-September quarter, compared with the previous three months, data released by the country’s statistics office on Friday showed. Economists polled by Bloomberg had expected a 0.2 percent contraction. The increase was driven largely by consumer spending, the office said, and marked an acceleration from 0.1 percent growth in the previous quarter.

But growth slowed in France and Spain. The European Union’s second-largest economy, France, grew 0.2 percent in the quarter, down from 0.5 percent in the previous period. Consumer spending slipped as record inflation in September pushed consumer prices 6.2 percent higher, government data showed.

In Spain, gross domestic product rose by 0.2 percent in the final months of the summer, a steep drop from 1.5 percent growth in the second quarter. The slide was unexpected, given the strong rebound of the country’s important tourism sector that had suffered during the coronavirus lockdowns in the past two years. But a drop in spending by consumers appeared to weigh on the Spanish economy.

Growth in Germany has now exceeded its prepandemic level, marking the economy’s recovery from the worst of the effects of the coronavirus. Nevertheless, disrupted supply chains have dragged on Germany’s export-driven economy, as have the high energy prices driven by Russia’s invasion of Ukraine.

Economists warned not to read too much into the stronger-than-expected showing.

“All leading indicators point to a further weakening of the economy,” said Carsten Brzeski, an economist with ING, who warned that a recession might not be avoided come winter. “Companies and households are increasingly suffering under higher energy bills and ongoing high inflation, adjusting consumption and investments.”

The German data appeared to be bolstered by strong growth in car sales, noted another economist, Claus Vistesen with Pantheon Macroeconomics. In September new car sales rose 14 percent over the same month a year ago, as supply chain backups began to ease making more vehicles available.Economists have been predicting that Germany would slide into a recession. High prices for energy and raw materials have driven up production costs and eroded demand, weakening orders for industrial goods, the German Institute for Economic Research, said on Thursday.

Natural gas prices, which soared earlier in the year, have eased recently. Part of the reason is unseasonably warm autumn temperatures, plus the fact that European gas storage tanks are largely full.

Although Germany reached its target of filing gas reserves to 95 percent capacity earlier this month, weeks ahead of the Nov. 1 deadline, fears that winter could bring fuel rationing or blackouts persist. “Risks for the way forward remain significant,” Guido Baldi, an economist with the institute said.

Several countries on Friday also released monthly inflation data for October, providing new evidence of persistent price rises over the past year. In many cases, the jump for October exceeded economists’ estimates. The main factors behind the increases were energy and food.

Inflation in Germany reached an annual rate of 11.6 percent in October, the country’s statistics agency said, after hitting the double-digit mark of 10.9 percent in September, The report said energy prices had risen 43 percent from a year ago, and food prices 20 percent.

In Italy, inflation jumped to 12.8 percent in October, from 9.4 percent the previous month, government data showed. Part of the increase, said Paolo Pizzoli, a senior analyst at ING bank, was because of a jump in electric bills reflecting past increases in gas prices.

“After such a shocking inflation release, the Italian government will likely feel compelled to speed up the launch of a new package of dedicated compensating measures,” Mr. Pizzoli said in a note.

In France, which has relatively low inflation because it is less reliant on Russian natural gas, inflation in October rose to 7.1 percent, from 6.2 percent. In Spain, the figure fell to 7.3 percent, from 9 percent in September.

In an effort to quell Europe’s record-high inflation, the European Central Bank on Thursday raised interest rates by three-quarters of a percentage point, matching the previous increase last month. The central bank, which sets monetary policy for the 19 countries that use the euro, said it had rapidly tightened its policy stance as inflation has proved worse and more persistent than the bank expected.

In Russia, where the economy has been hit hard by Western sanctions since the invasion of Ukraine, the central bank on Friday said that inflation is running at an annual rate of about 12.9 percent. It estimated that the Russian economy would shrink as much as 3.5 percent this year, and would not start growing again until the second half of next year.

The Russian Central Bank left its key interest rate unchanged, at 7.5 percent.

Sumber: www.nytimes.com