Growth slows at the end of 2021 in 19 countries using the euro | Health, Medicine and Fitness


By DAVID McHUGH – Associated Press

FRANKFURT, Germany (AP) — The European economy slowed noticeably late last year as rising COVID-19 cases due to the omicron variant added to supply shortages and rising energy prices which has reduced the purchasing power of consumers. The result: an economic winter of discontent that may not lift until later this year.

A large part of the the downturn came to Germany, Europe’s largest economy, where difficulty in obtaining parts has dampened its heavily export-driven manufacturing economy. France, Spain and Italy posted stronger growth.

In the 19 countries that use the euro, growth in the last three months of 2021 stood at 0.3%, the European Union statistics agency said on Monday. That compares with growth of 2.2% in the July-September quarter.

For the year, it was 5.2%, underscoring how Europe’s economic recovery from the pandemic has been slower than the rebound in the United States, where growth in 2021 was 5.7%. US growth has been boosted by what economists say is a relatively larger share of federal stimulus spending than in Europe.

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Europe’s economy is ‘almost exactly back to its pre-virus size’, but that leaves it ‘far behind’ the United States, which hit that milestone last year and is now further out of production. 3% from where it was at the end of 2019, said Jessica Hinds, senior Europe economist at Capital Economics.

One of the main reasons for Europe’s slowdown has been increase in COVID-19 cases which has led to new and changing restrictions and deterred cautious consumers from spend money in restaurants, hotels and entertainment. This is on top of clogged supply chains, which prevent the eurozone’s export-oriented manufacturing sector from meeting orders, and rising oil, natural gas and electricity prices, which weigh on businesses and consumers.

Companies have shown more resilience in the face of successive waves of the pandemic, helping to prevent the euro zone from falling into recession and limiting unemployment to 7.2% at the last reading. But slower growth is compounded by higher inflation, eroding wage increases.

“This adds to a considerable squeeze on consumer purchasing power and dampens growth prospects,” said Carsten Brzeski, global head of macro at ING Bank.

And the friction in the cogs of Europe is not over yet. Growth “could weaken further” in the current quarter, according to economists at UniCredit bank.

Germany, usually a growth engine for the eurozone, fell 0.7% in the fourth quarter and would slide into a mild recession if growth were negative again in the first three months of this year. Two consecutive quarters of declining output is one definition of a recession.

France, the euro zone’s second largest economy, meanwhile recorded growth of 0.7% compared to the previous quarter, leaving the figure for the year at 7%. It was the strongest since 1969. The full-year figure was supported by strength in consumer spending and services in the third quarter as many activities resumed during a lull in the pandemic.

Europe also faces uncertainty tensions around Russia massing troops on Ukrainian border, raising fears of an invasion. These fears helped keep abnormally high natural gas prices in Europe because Russia is a major supplier and the continent’s underground gas reserves are low. Until now, Russia says it has fulfilled its long-term supply contracts, and analysts believe that any sanctions imposed by the United States or the EU could seek to avoid directly targeting Russian energy.

Analysts expect Eurozone growth to pick up in the second quarter as supply chain woes ease.

In the meantime, the The eurozone inflation rate hit a record 5%, presenting a challenge to European Central Bank President Christine Lagarde at the meeting of banking policymakers on Thursday. Lagarde should stick to his view that inflation is temporary and that the bank is far from raising interest rates, the usual antidote to rising consumer prices.

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