Recession In Eurozone While UK Faces Highest Inflation In Developed World

Recession In Eurozone

Eurostat, the European statistics agency, said on Thursday: The Eurozone’s economy contracted in the first quarter of 2023. This marks the second consecutive quarter of contraction, thus meeting the technical definition of a recession.

The Eurostat announcement came following a downward revision of growth in the 20 countries that use the euro as their currency for the last quarter of 2022 and first quarter of this year.

“News that GDP (Gross domestic product) contracted in the first quarter after all means that the Eurozone has already fallen into a technical recession. We suspect that the economy will contract further over the rest of this year,” Andrew Kenningham, chief Europe economist at Capital Economics, said.

GDP in the Eurozone shrank by 0.1% between January and March, compared to the fourth quarter of 2022, Eurostat said in a statement.

The Eurostat attributed the downturn to a slump in both government and household spending and to revised data from Germany, which showed that the Eurozone’s largest economy slid into a recession at the beginning of the year.

Sharp GDP declines were registered in Ireland (down 4.6%) and Lithuania (down 2.1%), while Germany posted a quarterly decline of 0.3%, Eurostat data showed.

The Netherlands, Malta, and Greece also reported a quarter-on-quarter contraction in the first three months of the year.

Consumers Face Pressure

Household consumption in the euro area dropped by 0.3% in the first quarter, highlighting the pressures that consumers are facing amid soaring prices, the report said.

The revised data comes despite reassurances from European Central Bank officials that a recession could be averted even as inflation surged to the highest levels since the euro was introduced.

OECD Says About UK’s Inflation

The Organization for Economic Co-operation and Development (OECD) said on Wednesday: The UK will have one of the highest inflation rates of any major developed economy this year.

According to the forecast, British inflation, which only recently fell to single digits for the first time since last summer, will be higher in 2023 than nearly any G20 member except Argentina and Türkiye.

Cooling Energy, Food, Grocery

Although headline inflation in the UK declined to 8.7% in April from 10.1% in March amid cooling energy prices, food inflation has been stubbornly high. Grocery price growth reached 19.1% in April, which is the highest rate in more than 45 years, according to the UK Office for National Statistics.

The OECD predicted that even as Britain is expected to narrowly avoid a recession in 2023, higher interest rates are likely to dent economic growth and incomes in the coming months.

“The high interest burden on public debt and the recent drop in average debt maturity leave the public finances exposed to movements in bond yields,” the OECD said in its Economic Outlook.

The Paris-based organization expects the UK’s economy to grow by 0.3% this year and by 1% in 2024. It noted, however, that the forecast includes “significant risks.”

Renewed increases in wholesale energy prices will “further squeeze real incomes given the United Kingdom’s high dependence on natural gas. Faster-than-expected resolution of uncertainty regarding future trade relationships is an upside risk,” the forecast warned.

Responding to the OECD data, UK Chancellor Jeremy Hunt admitted that inflation was still “too high,” adding that “we must stick relentlessly to our plan to halve it this year. That is the only long-term way to grow the economy and ease the cost-of-living pressures on families.”

The inflation rate in Britain should average 6.9% by the end of the year, the report concluded.

Russian Economy Returning To Growth, Says World Bank

The World Bank said in its latest Global Economic Prospects report on Tuesday: The Russian economy will continue to grow despite sanctions thanks to higher-than-expected energy revenues. Russia’s growth is expected to turn positive in 2024, but will remain modest at 1.2%.

According to the outlook, output is expected to be 0.2% lower this year, which is a 3.1 percentage point upgrade from the bank’s January forecast.

The WB said: “This change mainly reflects the unexpected resilience of oil production and higher-than-expected growth momentum from 2022.”

The WB noted that in the face of Western sanctions, Moscow has altered the destination of its oil exports “without a material change in volume.”

The Washington DC-based institution cautioned that a continued contraction in export volumes and weak domestic demand will weigh on activity.

The Russian government has maintained a positive outlook for the economy. Prime Minister Mikhail Mishustin has predicted that, by 2024, the Russian economy will be able to overtake developed countries in terms of growth.

The WB also raised its 2023 global growth outlook, saying the U.S., China and other major economies have proven more resilient than forecast. It warned that higher interest rates and tighter credit could negatively affect next year’s indicators.

Real Global GDP

According to the WB, real global GDP is forecast to climb 2.1% this year, from the previously projected rise of 1.7%, but well below the 2022 growth rate of 3.1%. The WB slashed its 2024 global growth forecast to 2.4% from 2.7% in January, citing repercussions of central bank monetary tightening.

According to WB Chief Economist Indermit Gill, two-thirds of developing economies will see lower growth this year than in 2022.

“Even by the end of next year, a third of the developing world will not beat the per-capita income levels that they had at the end of 2019. That is five lost years for nearly a third of the world’s countries,” Gill told reporters.


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