Saudi Press

Saudi Arabia and the world
Friday, Mar 29, 2024

Eurozone inflation hits fresh record, while economy grows robustly

Eurozone inflation hits fresh record, while economy grows robustly

The data will add pressure on the ECB to hike rates by half a percentage point in September.

The eurozone economy showed Friday it's more robust than expected despite ever-raging inflation — raising pressure on the European Central Bank to hike rates more substantially in September.

Eurostat data showed that the eurozone economy grew by 0.7 percent on the quarter, accelerating from 0.5 percent in the first three months of the year and defying expectations of a significant slowdown.

The strong performance was driven by rapid growth in Spain, which grew by 1.1 percent, and Italy, which expanded by 1 percent. In both cases, the service sector — boosted by tourism — was especially healthy.

On the other end of the spectrum was Latvia, where GDP dropped by 1.4 percent, and Lithuania, down 0.4 percent on the quarter.

Output stagnated in the eurozone’s largest economy, Germany, while it expanded by 0.5 percent in France, the eurozone’s second largest economy.

While the overall growth picture is less gloomy than expected, the eurozone is still beset with scorching inflation.

Headline inflation accelerated to 8.9 percent in July, up from 8.6 percent in June. Analyst expectations had seen inflation remaining at or just slightly above the June rate. The primary driver remains energy prices, which were up 39.7 percent on the year, followed by food, alcohol and tobacco, up 9.8 percent.

Of special concern to policymakers is core inflation, which excludes those volatile components and is seen as a gauge for medium-term price developments. It accelerated further from 3.7 percent to 4 percent, or twice the ECB’s price stability target.

"The inflation problem is getting bigger and bigger," said Commerzbank economist Christoph Weil.


September tightening


With inflation turning out persistently higher than expected month after month, the European Central Bank last week decided to raise interest rates by 50 basis points (0.5 percent), more than it had previously flagged. The central bank said it'll lift rates further in September, but it left open whether it would issue another 50-basis-point move or a more conservative 25-basis-point step.

That decision will be determined by incoming data, its policymakers said.

Despite Friday's improved growth figures, the ECB is keenly aware the latest round of data points to a significant slowdown in economic activity ahead, thanks in part to the effects of the ongoing Ukraine war and energy-price shock.

"What we see in the real economy, certainly it is not terribly encouraging," ECB Governing Council member Ignazio Visco told POLITICO earlier this week. "Everything was dismal."

The key flash composite Purchasing Managers Index, for example, showed last week that eurozone business activity contracted in July as both output and new orders fell for the first time since early 2021. Business expectations also point to more pain ahead, having fallen to fresh lows.

Souring growth prospects have already prompted investors to bet the ECB will stop raising rates much earlier than they expected only a few months ago. Weaker growth should help bring down prices over the medium-term and limit the risk of inflation becoming more embedded in the real economy through wage growth.

"With a recession looming and inflation reaching new highs, the question is how the ECB will respond to an economy which is already cooling down," ING economist Bert Colijn said. "Don’t rule out the ECB front-loading hikes. So 50 basis points in September is definitely still on the table."

In an interview with the Estonian paper Postimees released earlier Friday, ECB Vice President Luis de Guindos underscored that inflation worries will trump growth concerns when the central bank sets it policies.

"The main factor that will guide our decisions will be the evolution of inflation," he said.

As Oxford Economics economist Nicola Nobile sees it, Friday's data clearly point in one direction.

"With inflation not showing any signs of cooling off in the short term and with the economic outlook not yet derailing, we expect another 50 [basis point] increase in September from the ECB," she said.

Newsletter

Related Articles

Saudi Press
0:00
0:00
Close
Reports in Gaza: 5 dead from the impact of aid packages dropped by the USA
Apple warns against drying iPhones with rice
China Criticizes US for Vetoing UN Ceasefire Resolution in Gaza
In a recent High Court hearing, the U.S. argued that Julian Assange endangered lives by releasing classified information.
The U.S. vetoed a U.N. Security Council resolution calling for a temporary ceasefire in Gaza, instead proposing its own six-week ceasefire plan contingent upon the release of all hostages held by Hamas
Prince William Urges End to Gaza Conflict
Saudi Arabia ranks first in UN index for e-government services in MENA
Israel has gone ‘beyond self-defence’ in Gaza, says Labour’s Streeting
EU Calls for Immediate Ceasefire in Gaza Conflict
Israel Records 20% Drop In GDP, War In Gaza Is The Reason
Saudi Arabia's FDI Inflows Grow with New International Standards
Venture Capitals Power Up Across MENA Region
Saudi Arabia Introduces Terms for 30-Year Income Tax Exemption for Multinational Companies
Saudi FM: Establishing Palestinian state is only pathway for Mideast stability
Russian opposition leader Alexey Navalny has died at the Arctic prison colony
Elon Musk's Starlink Gets License For Israel, Parts Of Gaza
Influencers Exploit X Platform for Profit Amidst Israel-Gaza Conflict
PM Modi Announces Opening Of New CBSE Office In Dubai
International Criminal Court's Chief "Deeply Concerned" By Rafah Bombing
January Funding for MENA Startups Totals $86.5 Million
Saudi Arabia accelerates digital economy growth through Nvidia partnership
Indian female military officers commend Saudi Arabia's progress and women's empowerment
Israel unveils tunnels underneath Gaza City headquarters of UN agency for Palestinian refugees
Israel deploys new military AI in Gaza war
Egypt threatens to suspend key peace treaty if Israel pushes into Gaza border town, officials say
Israel Utilizes AI Military Technology in Gaza Conflict
Saudi Arabia Warns Of A "Humanitarian Catastrophe" If Israel Moves On Rafah
China Warns Iran to Halt Houthi Attacks or Damage Trade Ties
US University To Shut Qatar Campus Due To "Heightened Mideast Instability"
Iran-backed hackers interrupt UAE TV streaming services with deepfake news
Facebook and Instagram Ban Iran's Supreme Leader
Finnish Airline, Finnair, is voluntarily weighing passengers to better estimate flight cargo weight
U.S. Secretary of State Blinken: The Israelis underwent dehumanization on 7.10, this does not give them the right to do this to others.
Defense Technology Showcase Held in Riyadh
Saudi Arabia’s non-oil exports rise 2.5% to $6bn in November 2023: GASTAT
UK Bans Misleading "Zero Emissions" Claims for Electric Cars
Gaza's Teen Inventor Sparks Light in Displacement
Netanyahu Rejects Ceasefire Proposal, Insists On Total Victory Over Hamas
Guterres appoints independent UNRWA review panel
Private Sector Employment Hits Record High with Over 11 Million Employees in January
Rolls-Royce Executive Encourages Saudi Women to Tap into Their Inner 'Superhero' for Success in Defense Industry
Saudi Arabia launches National Academy of Vehicles and Cars
Saudi Tourism Minister Reveals Plan for 250,000 New Hotel Rooms by 2030
SAR to more than double eastern network passenger capacity with new trains deal
Saudi Arabia Enhances National Defense with New Partnerships
Saudi Aramco Maintains Arab Light Crude Pricing to Asia for March
NEOM Establishes New York Office to Support Investors
Saudi Wealth Fund Draws in Over $25 Billion Worth of Investments in Three Years, Al-Rumayyan Reveals
ZATCA Cautions Against Scammer Schemes
INTRA Defense Technologies inaugurates drone factory in Riyadh
×