EU inflation hits new record high, economic growth falls back

By Al Mayadeen English
Source: Agencies
31 Oct 2022 17:53

Eurostat says that as energy prices soar, the inflation in the Eurozone hits a new record high amid sowing economic growth.

Inflation in EU hits record high as energy costs surge.

The EU inflation rate hits a new record high as economic growth for the Eurozone plunged to 0.2% in the third quarter of 2022 as energy prices soar.

According to Eurostat, the EU's statistics agency, a massive 41.9% jump in energy prices led to a hike in consumer prices, which hit 10.7% in October compared to 9.9% in the previous month of September.

Check out: The cost of the energy crisis in Europe

According to the EU Central Bank (ECB), a recession is looming on the continent's horizon, and it is not getting any further.

The ECB is under mounting pressure to mitigate inflation and embark on the path taken by the United States, where the Federal Reserve has warned that it may cause a recession just to drive prices down, and in that pursuit, the ECB announced new interest rate hikes to try and battle the new record high inflation.

Recession concerns have helped push the euro to a 20-year low against the dollar, which adds to the ECB’s inflation-fighting task by worsening already high energy prices. Oil is among many commodities priced in dollars.

The new figures released by the Eurostat indicate that the economic growth in the Eurozone did slightly better than previous forecasts, the main reason is Germany out-performing earlier projections and hitting 0.3% growth, along with other major EU economies, such as Italy, which announced 0.5% growth on Monday while France and Spain hit a 0.2% economic growth.

Italy and Germany are now the two largest European economies most exposed to a gas supply shock due to their extensive use of natural gas and significant reliance on Russia, according to S&P Global Ratings.

Eurostat noted that the Eurozone's growth jumped by 2.1% this quarter compared to the Q3 of 2021.

However, analysts said that recession is looming regardless of the reports of growth, and the real question is how hard it will hit, not whether it will actually happen.

"It is a matter of how deep the recession will be and not if there will be one," Oxford Economics said. "Therefore, while Q3 was more resilient than expected,The a recession over the winter in the Eurozone is imminent."

Back in September, the vice president of the ECB stated that Eurozone economic growth has been on a decline and could soon become zero. Due to the stark increase in energy costs and the loss of Russian gas, economic output has been suffering. This has raised the risk of energy rationing in the next season, which will require a lot of heaters.

The EU energy minister gave the European Commission a mandate to limit gas prices earlier in September. Surging costs of power linked to gas prices have already stunted the production in various industries, such as fertilizers and aluminum, prompting EU governments, such as Germany, to increase their spending by billions in order to help their citizens.

The Executive Director of the International Energy Agency (IEA), Fatih Birol, said last week that tightening markets for liquefied natural gas (LNG) around the world, combined with big oil producers lowering supplies, have thrown the world into "the first truly global energy crisis."

According to Birol, rising LNG imports to Europe as a result of the war in Ukraine, as well as a potential rebound in Chinese demand for the fuel, will tighten the market, as only 20 billion cubic meters of new LNG capacity will enter the market next year.

In a statement made in October, Hendrik Neumann, chief technical officer of Germany's main grid operator Amprion, said that the energy crisis Germany and the rest of the EU are facing is not entirely resulting from the Ukraine war, but rather comes as "overlapping issues" become more prominent.

The "overlapping issues" that Neumann addressed could be also connected to Macron's statement last week, where he called out US "double standards" for selling gas to Europe at prices 3 to 4 times higher than it is sold in the US domestic markets.

"American gas is 3-4 times cheaper on the domestic market than the price at which they offer it to Europeans. These are double standards," Macron stated, adding that "it concerns sincerity in transatlantic trade" and that this issue should be addressed.

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