Macroeconomic outlook for the euro area
2022-10-11
■ The growth rate will slow down sharply from July -September onwards.
■ Natural gas price continues to rise and it's likely that interest rates will continue to be raised significantly.
The eurozone maintained high growth until April-June, but growth is expected to slow sharply from July onwards as the effects of gas supply shortages and higher prices become apparent.
The Eurozone's Business Coincidence Index fell sharply in July (0.38) due to heightened gas supply concerns, while it fell further in August (0.23) due to the inclusion of extreme weather conditions and the shutdown of a gas supply pipeline from Russia, among other economic disincentives. Business confidence Index(93.7), Consumer Confidence Index(-28.8) and Sentix Investor Confidence Index (-31.8) remained subdued in September, while the PMI (preliminary data for September, manufacturing: 48.5 and services: 48.9) were below the normal for expansion or contraction of business activity in both manufacturing and services: 50. The headline PMI, which is highly correlated with real GDP growth, has remained below 50 since July, hinting at a drop to negative growth during July-September. Natural gas supply and demand are expected to be tighter this winter, when fuel demand will rise and economic repression pressures will increase further due to the 15% voluntary cut.
Meanwhile, price increases did not stop there, as the Harmonised Indices of Consumer Prices (HICP, up 9.1% year-over-year) continued to post the highest increase since the start of the count in August. In addition to energy prices such as natural gas, the pace of price increases for general goods and services and wages accelerated (+4.1% year-over-year in April-June) and underlying inflation strengthened. The European Central Bank (ECB) raised its policy rate by 0.75% on June 9 and said in a statement that it intends to continue raising rates in the next few meetings. While the extent of the rate hike will be determined by the data, significant rate hikes are likely to continue as gas prices continue to rise and underlying inflation shows no signs of slowing.