The European economy experienced a mild contraction in the fourth quarter of 2023 and the first quarter of 2024, slipping into a technical recession. Economic output in the Eurozone declined by 0.1% in each quarter, consecutively, impacted by supply chain disruptions and high energy prices.
According to Eurostat, the statistical office of the European Union, the economic output of the 20 countries using the euro currency fell by 0.1% in both the last three months of 2022 and the first three months of this year compared to the previous quarters.
In Germany, the locomotive of the European economy, the manufacturing Purchasing Managers’ Index (PMI) fell by 4.2 points to 58.4 due to supply chain disruptions. Germany, facing a natural gas crisis with Russia, was forced to secure energy imports from countries like the US and Qatar. This drove energy bills and inflation to record levels. In Germany, inflation reached 9.8% year-on-year in January.
Eurozone Inflation Rises to 7 Percent
Inflation in the euro area reached a record high of 7 percent on an annual basis in April. The increase in inflation is attributed to rising energy and food prices. Inflation rates were 24.5 percent in Hungary, 15 percent in Latvia, 14.3 percent in the Czech Republic, 14 percent in Slovakia and 14 percent in Poland.
European Central Bank (ECB) President Christine Lagarde argued that inflation is temporary and will fall to the targeted 2 percent level in the medium term. Lagarde announced that they will not tighten monetary policy and will reduce but not end bond purchases.
Vaccination and Recovery Fund Important for Economic Recovery
For the European economy to recover this year, vaccination needs to be stepped up and pandemic measures relaxed. The distribution of the European Union’s €750 billion rescue fund is also of great importance. The European Commission wants 37 percent of this fund to be allocated to the green economy and 20 percent to digital transformation. The European economy is targeting growth of 0.9 percent this year and 1.5 percent in 2025.
Last Week on the EU Agenda: Energy Crisis, Bailout Fund and Russia-Ukraine War
From February 11 to 17, 2024, the European Union (EU) focused on key issues such as the energy crisis, inflation, the bailout fund and the Russia-Ukraine war. The EU economy assessed the situation of the euro area, which fell into recession due to supply bottlenecks and high energy prices, and started the distribution of the 750 billion euro bailout fund.
Tackling the Energy Crisis:
- EU Commission President Ursula von der Leyen announced that they will reform the natural gas market to lower energy prices and increase security of supply.
- The EU plans to invest in the green economy to increase renewable energy sources and energy efficiency.
- 37% of the bailout fund will be allocated to the green economy and 20% to digital transformation.
Fighting Inflation:
- Inflation in the euro area rose to 7% in April.
- In some countries, inflation reached double digits.
- The European Central Bank (ECB) argued that the inflation is temporary and will decline to 2% in the medium term.
- The ECB will not tighten monetary policy and will reduce but not end bond purchases.
Russia-Ukraine War:
- The EU condemned Russia’s aggression against Ukraine and expressed support for Ukraine’s territorial integrity.
- The EU threatened to impose economic sanctions on Russia.
- Humanitarian and political support was provided to Ukraine.
- Sources:
European Commission
European Parliament
Eurostat
European Central Bank
Council of Europe
