European Commission: EU at a Turning Point With Inflation Far From Its Peak

According to the most recent statistics, Paolo Gentiloni, the EU’s Commissioner for Economy, told reporters in Brussels that “the EU economy is at a turning point.” He also said that current forecasts projected a drop for the winter and that the EU economy “lost momentum in the third quarter.”

The Commission predicted that the economy would fall in the last quarter of this year and continue to contract in the first three months of 2023, mostly as a consequence of the rise in energy prices brought on by the conflict in Ukraine.

Inflation, GDP, and Employment

Officials from the European Union in Brussels increased all of their expectations for consumer prices while slashing their predictions for growth in the next year, forecasting almost no expansion. They predict that the economy is already declining and will continue to do so in the first quarter of 2023.

According to the European commission, overall inflation will be 9.3% in the EU and 8.5% in the euro area this year, and it will only slightly decline to 7% and 6.1%, respectively, in 2023.

In October, annual inflation in the eurozone hit a record 10.7%. According to Eurostat, both the EU and the euro area’s seasonally adjusted gross domestic product (GDP) rose in the third quarter compared to the second quarter by 0.2%.

One traditional definition of a recession is two consecutive quarters of declining production, but the economists on the eurozone business cycle dating committee utilize a wider range of information, employment statistics are one such additional example.

The EU commission expected a rise in the unemployment rate from 6.8% this year to 7.2% next year and a fall to 7% in 2024, indicating that the labor market was expected to hold up quite well despite declining production during the winter.

According to Gentiloni, the forecasts are susceptible to risks from unforeseen circumstances like a full shutdown of any remaining Russian gas, but if EU countries work together to address the economy and the energy problem, the economy may perform better than projected. He referenced a debate over updating EU regulations aimed at reducing excessive deficits and debt.

The Energy Crisis

As a result of Russia’s reduction in gas supplies to Europe, which is utilized for heating, power, and industrial activities, natural gas, and energy prices have skyrocketed.

Government-owned gas provider Gazprom has cited technical considerations and certain customers’ unwillingness to pay for gas in roubles, despite accusations from European officials that Russia is engaging in energy warfare to punish EU nations for backing Ukraine.

In response, EU nations have set up additional supplies of natural gas via pipelines from Norway and Azerbaijan, as well as in a liquefied form that arrives by ship from the US and other countries. They have also offered monetary assistance to customers facing increased costs.

Germany, the biggest economy in Europe and one of the most reliant on Russian natural gas before the crisis in Ukraine, is predicted to have the poorest performance in 2023. Over the next year, it was anticipated that production in Germany would decline by 0.6%.

Will the EU Inflation Figures Follow US Trends?

When the global inflation crisis began to unfold a year ago, it was generally speculated that it would be more likely to persist in the United States than in Europe, since the US had a far larger stimulus program in place and higher levels of consumer demand. However, the oil and gas crisis in Europe has ultimately thrown that image out the window.

Following months of stubbornly persistent interest rate hikes from the Federal Reserve, fresh economic statistics published on Thursday last week indicated that inflation in the US slowed more than anticipated in October. This was good news for American consumers as well as for the Federal Reserve and the White House.

While many homeowners continue to struggle with severe inflation, it is now starting to show indications of improvement. In the year through October, the Consumer Price Index (CPI) increased by 7.7% less than the 7.9% that experts had predicted, and less than the 8.2% that it had increased by in the year through September.

After excluding the volatile expenses of food and fuel, prices increased by 6.3% annually, down from 6.6% in the previous report. Additionally, the core inflation gauge had its steepest monthly decline in more than a year.

The analysis offers preliminary indications that the Fed’s initiative to curb inflation may be easing pricing pressures amid recent supply chain repair. The central bank has increased interest rates this year from below zero to almost 4% in an effort to reduce consumer and corporate demand and allow supply to catch up.

The announcement caused stocks to soar as investors saw it as a warning that Fed policymakers could hike rates more gradually and cause less economic harm in their effort to control inflation.

The regulated CFD broker ActivTrades expects market volatility to remain high, especially on European markets, as traders will carefully monitor CPI figures for the Euro Zone. Other CPI data will also be published this week like in Canada, in England, and in Japan, which might keep boosting the global stock market if data is lower-than-expected.

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