Cost of living crisis comes as 19-member currency bloc beats growth forecasts in second quarter
France, Italy and Spain, which are credited with partially controlling domestic energy costs to minimise the impact of the cost of living squeeze, boasted the highest growth. They also benefited from a return of tourism and the reopening of businesses after pandemic lockdowns.
France rebounded from its 0.2% contraction in the first quarter to growth of 0.5% in the latest period, while Italy grew by 1% and Spain by 1.1%. In Germany, where manufacturing has been hit by surging energy prices and faltering Chinese demand, growth stagnated. Azad Zangana, a senior European economist at Schroders, said the disappointment in Germany was understandable, though “it is worth noting that German GDP growth for the first quarter was revised up from 0.2% to 0.8%, with the underperformance compared to the previous data consequently being not as bad as it appears”.record inflation could spur the European Central Bank “Food and core inflation continue to trend higher while the gas crisis is keeping energy inflation elevated.
He said the Frankfurt-based central bank could add to the 0.5 percentage point rise earlier this month with a similar hike when it meets in again in September.Hussain Mehdi, the macro and investment strategist at HSBC Asset Management, said:Another upside inflation surprise will make uncomfortable reading in Frankfurt and exacerbates the household income squeeze.
“Underlying price pressures are emanating from a strong labour market, while further gas supply disruptions pose significant upside risks going forward,” he said.Topics
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