Europe’s economy shrank. For affected families, it’s just numbers


LONDON (AP) — The European economy shrank slightly at the end of last year and into early 2023, revised figures showed Thursday, underscoring the impact of the loss of Russian natural gas and higher inflation on consumer spending.

Economic output in the 20 countries that use the euro currency fell 0.1% from the previous quarters in the final three months of 2022 and the first three months of this year, according to Eurostat, the European Union’s statistics agency.

That means the euro zone has experienced two consecutive quarters of contraction, a definition of recession known in political and economic debates as a „technical” recession.

However, economists on the panel predicting a eurozone recession use a wide range of data, including unemployment figures. And European labor markets have weathered recent economic shocks: unemployment is at its lowest level since before the creation of the euro in 1999, at 6.5% in April.

Little change in the numbers won’t change what families are already experiencing: rising grocery prices, the European Central Bank raising rates, paying higher interest on their mortgages and struggling to keep up with rising living costs.

„Maybe before I bought too many unnecessary things, like potato chips, for example,” said 26-year-old youth social worker Milo Tanneron while shopping at a Paris supermarket recently.

„Now, for some products, I’m forced to buy from lower-priced brands, and I have to cut a notch to buy these products,” Tanneron said.

As inflation and high interest rates hit households hard, forcing them to cut back on spending, some analysts expect the economy to shrink further this year. But the Organization for Economic Co-operation and Development said this week that it expects a paltry 0.9% growth in the euro area in 2023.

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Bert Kolijn, senior eurozone economist at ING Bank, said „it’s hard to argue that it’s a sluggish environment” because the decline is so small and the job market so strong.

„Overall, the eurozone economy has returned to a very chaotic state,” he said in a note.

In the United States, economic growth slowed to a sluggish 1.3% annual rate from January to March, but consumer spending rose and the job market remained warm. Most economists don’t think the U.S. will head into a recession anytime soon, and if one does, it will be farther away than many of them previously thought.

In Europe, Russia’s war in Ukraine triggered an energy crisis last year and the economic crisis. Moscow halted most of its natural gas exports to the continent, which relied on those supplies to power power plants and heat homes.

Energy bills for homes and businesses soared, inflation soared to record levels, and concerns about possible rationing and blackouts grew. Governments and utilities have been able to line up alternative supplies of liquefied natural gas from countries such as the US and Qatar, avoiding catastrophic utility outages that were feared last year.

Energy prices have fallen to levels before Russia invaded Ukraine, but persistent inflation and high interest rates to fight inflation have weighed on economic growth by making loans for home purchases or business expansion more expensive.

The European Central Bank is expected to continue its string of rate hikes at its June 15 meeting and leave the door open for further hikes beyond that.

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ECB President Christine Lagarde this week stressed the need to lower inflation – which fell to 6.1% in May but still triple the bank’s target of 2% – because it is a strain on everyday people.

His comments followed the latest figures from Germany, which showed Europe’s largest economy contracted unexpectedly in the first three months of the year, marking its second quarter contraction.

Ireland’s GDP – the total output of goods and services – fell the most in the euro zone in the first quarter, falling 4.6%, followed by Lithuania down 2.1% and the Netherlands down 0.7%.

The Euro Area Business Cycle Dating Committee said there was „no recession” in its last update, which was published on March 27 and only dealt with data up to the end of last year.

It said falling consumer spending was offset by a statistically significant reduction in imports and that „the pause in output growth contrasted with a continued, robust expansion in employment”.

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