Eurozone on the brink of ‘stagflation’

The Eurozone is now showing many signs of stagflation. This movable word, which refers to economic stagnation during a period of high inflation, does not have an official definition, but the current situation looks more and more similar to it. In May, inflation in the countries of the European single currency reached 8.1% over one year, according to data published on Tuesday, May 31 by Eurostat. Unheard of since the creation of the euro. During the last inflationary rise in 2008, the price index rose to 4%.

Read also: This article is reserved for our subscribers Energy shock, slow growth: in Europe, the specter of stagflation

At the same time, growth slowed sharply. It was 0.3 percent in the first quarter in the eurozone, a period that included just five weeks of the war in Ukraine, which began on February 24. In France, during the same period, it was negative, at -0.2%, according to the new estimate from the National Institute of Statistics and Economic Studies published on Tuesday. Since then, in April and May, economic indicators across the region have been trending lower without crashing. Because of the sudden rise in the cost of living, households are particularly affected, while the industry appears to be standing better.

“The juxtaposition of high inflation with sluggish GDP – France joins Italy in negative territory – revives fears of stagflation”confirms Jill Muek, chief economist at AXA. “War in Ukraine and China’s Zero-Covid Strategy Create Unprecedented Peak Inflation and Deteriorating Growth in the Eurozone”Adds Ludovic Subran, chief economist at Allianz.

France, protected by a tariff shield on electricity and gas prices, ranks second among the least affected countries (5.8%).

The magnitude of this inflationary shock, unprecedented since the 1980s, was detailed on Tuesday by Eurostat. Six out of the nineteen eurozone countries now report a price hike of more than 10% in May (Netherlands, Greece, and Slovakia, as well as the three Baltic states). In Estonia, the proportion is even 20%. The larger and less volatile economies are following the same trend. Thus Germany (8.7%), Belgium (9.9%), Spain (8.5%) and Italy (7.3%). France, protected by a tariff shield on electricity and gas prices, ranks second among the least affected countries (5.8%).

Disrupted supply chains

Energy, whose cost has gone up 39% in one year in the eurozone, is still the main explanation. But this phenomenon is gradually spreading throughout the economy. Food prices rose 7.5%. “Core” inflation (excluding energy, food, alcohol and tobacco) also continued to rise, at 3.8% in May versus 3.5% the previous month and 2.3% in January.

You have 51.09% of this article left to read. The following is for subscribers only.

Leave a Reply

Your email address will not be published. Required fields are marked *