Euro zone inflation jumps to 3% as economic growth almost stalls
Inflation in the Eurozone eased in the last two months of 2022, but the economic indicator is still well above the European Central Bank’s 2 percent target.
Jeff Greenberg | Universal Images Group | Getty Images
The euro zone economy grew weakly by 0.1% in the first quarter of the year, according to preliminary data published on Thursday, as the Iran war hindered growth in the region and inflation pressures intensified.
The crackdown comes as breaking data showed consumer prices in the single currency zone rising with inflation It rose to 3 percent in AprilIt was 2.6% in the twelve months to March and 1.9% in the month before that.
The data pressures come ahead of the European Central Bank’s next monetary policy decision on Thursday; The bank’s governing council is expected to keep its benchmark interest rate at 2% as it gauges how inflationary pressures caused by the Iran war, particularly fuel price increases, will play out.
Economists fear Europe could face a period of “stagflation” of low growth, rising inflation and unemployment as the war causes a global energy crisis, increases prices and undermines business and consumer confidence.
The ongoing blockade of the Strait of Hormuz, a vital oil and gas transit, is a major concern for Europe as it struggles to source oil, gas and jet fuel from suppliers outside the Middle East at a time when demand and competition are already increasing.
“The world is a dangerous place. In addition to Trump tariffs and China’s subsidized export push, the repercussions of the Iran war are now hurting European economies,” Berenberg economists warned in an emailed analysis last week.
“With the Strait of Hormuz remaining largely closed and widespread uncertainty weighing on confidence, the eurozone and UK economies are likely to suffer a stagflation crisis. This year’s growth in Europe will lag last year’s pace, even if the worst of the war is over by the end of April, as we assume for the base case.” They called on the ECB to keep interest rates tight for now.
“The outlook from now on will largely depend on the European Central Bank. In our view, inflation risks are much milder than in 2022. However, if the European Central Bank raises interest rates in response to a temporary rise in inflation, the Eurozone could first fall into an unnecessary mini-recession in late 2026 or early 2027 before the economy begins to recover from this policy mistake. There is no doubt that the ECB will remain on hold this year.”
This is breaking news. Please check for more updates.
