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Eurozone Economy Grows Faster Than Expected, but So Does Inflation

Inflation in the eurozone hit 8.9 percent in July compared with a year ago, as prices driven by the high cost of energy reached a fresh record, and many of its largest economies expanded faster than expected in the second quarter except for Europe’s traditional engine, Germany, which stalled.

Prices in the 19 countries that use the common European currency increased from the 8.6 percent mark they hit in June. Their economies grew by 0.7 percent in the three months from April to June, versus the previous quarter, official figures released Friday showed.

Germany, Europe’s largest economy, stagnated in the second quarter, as trade slowed and the country grappled with the on-again, off-again deliveries of natural gas from Russia. Germany still gets nearly a third of its gas from Russia, and high energy prices resulting from Russia’s war in Ukraine have hit the economy particularly hard.

Elsewhere in Europe, countries whose economies did not rely as heavily on fossil fuels from Russia saw stronger growth in the same period, effectively flipping the script on Europe’s economic narrative, where Germany serves as the driver for growth.

France, Italy and Spain — all countries with a strong tourism sector — saw economic growth for the three months from April to June that beat analysts’ expectations. The French economy expanded 0.5 percent from the first quarter, while Italy’s grew 1 percent and Spain’s expanded by 1.1 percent.

On Thursday, Germany reported annual inflation increased in July to 8.5 percent, from 8.2 percent the previous month, as further cuts to natural gas deliveries from Russia created concern that already record energy prices will climb even higher.

The latest figures appeared to support last week’s decision by the members of the European Central Bank’s Governing Council to take a powerful step to address inflation by raising its three interest rates half a percentage point, the first increase in more than a decade.

Economists expect the bank will continue to raise rates again at its next meeting in an effort to control rising prices amid mounting concerns over an economic slowdown.

“With inflation not showing any signs of cooling off in the short term and with the economic outlook not yet derailing, we expect another increase” of half a percentage point when the bank meets again in September, Nicola Nobile of Oxford Economics said in a note.

On Thursday, fresh data showed that the U.S. economy shrank for the second straight quarter, raising fears that the country could be entering a recession — or perhaps that one had already begun. G.D.P. fell 0.2 percent in the second quarter, which followed a decline of 0.4 percent in the first quarter. With inflation also running hot in the United States, the Federal Reserve has raised its key interest rate by three-quarters of a point at its past two meetings, with more increases expected to come.



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