Eurozone economy returns to growth after inflation eases in July; Germany’s DAX hits new record

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The economic growth in the eurozone rebounded in the second quarter, according to the data released by the European Union’s (EU) agency, on Monday (July 31). The report has since led to a rise in European shares with the German blue-chip index or DAX hitting a record high. 

Inflation in eurozone eases

The EU’s Eurostat data agency said that the growth in the 20 countries that use the euro referred to as the ‘eurozone’ reached 0.3 per cent over the second quarter, April-June period, after recording zero growth in the first three months of the year. 

This comes after a long period of stagnation in the eurozone economy as inflation continues to fall from last year’s peak. According to the data, the inflation rate also declined from 5.5 per cent to 5.3 per cent in July. 

Earlier this year, the European Commission (EC) winter forecasts also noted that the eurozone will narrowly avoid the technical recession which was expected last year in November as the growth since was 0.1 per cent quarter-on-quarter. 

However, concerns about the inflation in the eurozone – which continues to be stubbornly high – remained. This is also in addition to fears about the slow growth and stagnated Gross Domestic Product (GDP) reported between April and June in the biggest European economy, Germany. 

Meanwhile, the French and Spanish economies grew more than expected. “This won’t be welcome news in Frankfurt, and will help the hawk’s cause,” said Claus Vistesen, chief eurozone economist at Pantheon Macroeconomics. 

He added, “Coupled with scary-looking Q2 wage data, we still think that the ECB hawks will successfully push for one final hike in September before the data turn decisively against them. This is a close call.”

In the Eurozone, Belgium had the lowest inflation rate, at 1.6 per cent in July, according to the Eurostat data. However, the food and drink costs continue to rise sharply, at 10.8 per cent when compared with 11.6 per cent in June. 

European stocks rise after report

After the data by the EU agency was released, European shares rose, including the German DAX as it inched up 0.1 per cent and hit a record high for the second consecutive session, according to Reuters. The rise was attributed to drugs and pesticide maker Bayer.

Additionally, pan-European STOXX 600 and Italy’s FTSE MIB index also witnessed a rise on Monday. 

The European Central Bank (ECB), which has also sought to calm the soaring inflation – following in the footsteps of the US Federal Reserve and Bank of England has aggressively raised interest rates – announced its ninth consecutive hike, last week. 

While there has been a recent drop in inflation, the figures remain far higher than the ECB’s two-per cent target. After the latest hike, the interest rate stood at 3.75 per cent highest since 2000-01. 

While ECB president Christine Lagarde last week indicated that the aggressive interest rate hikes could be paused, analysts suggest another hike is still a possibility which might further constrain economic growth.

Bert Colijn, senior eurozone economist at ING, a global financial institution, said that the recent eurozone GDP reading would not be “a dovish argument” at the next ECB rate-setting meeting in September, “leaving a further hike on the table,” report AFP. 

(With inputs from agencies) 


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