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| Eurozone economy shrinks for second consecutive quarter. (Source: Alamy) |
Figures from Eurostat - the statistical agency of the European Union (EU) - show that the Eurozone's Gross Domestic Product (GDP) decreased by 0.1% in the first quarter of 2023 and the last three months of 2022. Thus, the Eurozone economy has actually fallen into a technical recession when GDP declines for two consecutive quarters.
Russia's extraordinary military campaign in Ukraine has dealt a heavy blow to Europe, with soaring food prices and energy shortages leading to factory and steel plant closures.
Eurozone inflation is now falling but remains high. Europe’s inflation rates are higher than Brazil, China, India and Saudi Arabia. Electricity prices are falling in France and Germany but are three to four times higher than they were before the Covid-19 pandemic. This is a drag on Eurozone GDP.
In a recently published report, the World Bank (IMF) said that there is currently a cost of living crisis in Europe.
In France, households have had to cut food purchases by more than 10% since the war broke out between Russia and Ukraine, in addition to reducing energy consumption by 4.8%, the Wall Street Journal reported.
In Germany, food sales fell 1.1% in March from February and were down 10.3% year-on-year - the sharpest decline since records began in 1994.
The German Federal Agricultural Information Center also said that meat consumption in the country in 2022 fell to its lowest level since 1989, although this may partly reflect a shift towards consuming plant-based products.
According to a survey by the UK statistics agency, about three-fifths of the poorest 20% of households in the UK have had to cut back on food purchases. The UK research organization Resolution Foundation estimates that by this summer, rising food prices will increase total food spending in the country from 2020 by £28 billion, equivalent to nearly $35 billion.
Countries in the region have responded to the crisis with social subsidies such as not increasing energy prices, reducing public transport fees, and capping electricity and natural gas prices for households and businesses.
In addition, several European countries, including Italy, Spain and Portugal, have cut sales taxes on food products to ease the burden on consumers, while others rely on food retailers to keep prices under control.
But rising prices at the grocery store, paying more interest on mortgages and struggling to keep up with living costs are all things Europeans are facing. Inflation and high interest rates are hitting households hard and forcing them to cut back on spending.
Some analysts predict that the European economy will continue to decline this year.
In new forecasts released this week, international organizations have made cautious comments about the prospects for the Eurozone economy this year.
Specifically, according to the Organization for Economic Cooperation and Development (OECD), the Eurozone will record economic growth of only 0.9% this year. The World Bank is more cautious with a forecast of 0.4%.
The European Central Bank (ECB) is expected to continue a series of interest rate hikes at its meeting on June 15.
ECB President Christine Lagarde has stressed the need to reduce inflation – which fell to 6.1% in May 2023 but is still three times the bank's 2% target – because it is putting stress on everyday people.
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