European economy showed only modest gains at the end of 2022 as rising inflation and Russia’s invasion of Ukraine impacted consumer spending, according to Eurostat, the European Union statistics agency. The economy grew by 0.1% in the last quarter of 2022, which was just enough to avoid a downturn. However, the overall economy grew by 3.5% in 2022, outpacing the growth of the United States and China.
The euro-sharing countries appeared to have escaped the worst-case scenario of forced industrial shutdowns due to the lack of natural gas supplies from Russia. Despite the warmer-than-usual winter weather, natural gas prices remained three times higher than before the conflict with Ukraine, and this was affecting utility bills and leading companies to raise the prices of goods and food.
Growth in Europe was largely driven by Ireland, which showed a growth of 3.5%, due to the high number of foreign companies located there for tax purposes. Germany and Italy, however, experienced a decline of 0.2% and 0.1%, respectively. The economic growth in Europe was also impacted by reduced activity in China, which was under severe COVID-19 restrictions at the time.
Despite the weaker growth, Europe may avoid a technical recession as long as the economy remains positive in the first quarter of 2023. The International Monetary Fund has raised its forecast for global economic growth to 2.9% this year, which is good news for Europe due to its extensive trade links. However, the European Central Bank’s series of interest rate increases have raised the cost of borrowing, which may slow down the economy. The consumer prices in December rose by 9.2% from the previous year, far above the central bank’s 2% target, leading to the expected rate hike of 0.5% at the next meeting.
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