Eurozone inflation hits new high as growth slows amid Ukraine war

Ukraine war takes toll on economy of European countries using the euro as inflation reaches record levels and output weakens.

People walk along La Bola shopping street in Ronda, southern Spain
The jump in consumer prices is mostly attributed to higher energy costs [Jon Nazca/Reuters]

Inflation in the eurozone hit a new record this month while growth slowed during the first quarter of the year, according to official data, as the war in Ukraine takes a toll on the European region’s economy.

Spurred by skyrocketing energy prices, annual inflation soared by 7.5 percent in April, the European Union’s statistics agency Eurostat said on Friday. The figure was the highest since statistics started in 1997 and the sixth record in a row, topping the old record of 7.4 percent from March.

The spike in consumer prices is mainly due to higher energy costs, which are up a startling 38 percent compared with the same month last year.

The figure is evidence to how Russia’s February 24 invasion of Ukraine and the accompanying global energy crunch are affecting the eurozone’s 343 million people, adding new burdens to household finances and weighing on a slowing economic recovery from the latest outbreaks of COVID-19. In the United States, meanwhile, inflation is also running at an eye-watering 8.5 percent.

Separately, Eurostat said economic growth in the 19 European Union member countries that use the euro slowed to 0.2 percent in the first three months of 2022, as higher inflation coupled with restrictions during the spread of the highly contagious Omicron variant of the coronavirus held back demand.

The first quarter figure was down from 0.3 percent in the last three months of 2021.

Among the major countries, Spain and Germany saw their gross domestic product (GDP) grow by 0.3 percent and 0.2 percent respectively in the period. France was flat and Italy down, minus 0.2 percent.

Andrew Kenningham, chief Europe economist at Capital Economics, said the small increase in eurozone growth “means that the region will avoid a technical recession in the first half of the year at least”.

But he warned that “rising inflation and the fallout from the Ukraine war mean that GDP is likely to contract in the next quarter.”

Just as the global economy was bouncing back from the coronavirus pandemic, a growing list of risks – the war in Ukraine, Russia sanctions, China’s “zero-COVID” policies, spiking inflation and interest hikes by the United States Federal Reserve – is clouding the economic outlook.

Concerned over the possibility of even higher heating, electricity and auto fuel prices, European governments have so far held back from halting energy imports from Russia as part of the unprecedented sanctions they have imposed on it over its invasion of Ukraine.

But economists fear the war may lead to an interruption of oil or gas supplies from Russia, pushing prices even higher.

That comes on top of rebounding global demand amid recovery from the pandemic downturn and a cautious approach to increasing production from oil cartel OPEC and allied countries, including Russia.

Inflation is also putting uncomfortable pressure on the European Central Bank to look at raising interest rates from record lows in coming months.

Higher rates to quell inflation could also weigh on a recovery that has been shaken by the energy crunch, the war and the latest outbreaks of COVID-19.

Source: Al Jazeera and news agencies