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Eurozone Economy Keeps Growing

Eurozone Economy Keeps Growing Despite Inflation The eurozone economy is still growing in July 2023 even though inflation is still high. This condition is expected to strengthen the European Central Bank’s (ECB) argument to continue raising interest rates.

The Eurozone Gross Domestic Product (GDP) in the second quarter of 2023 rose 0.3 percent from the previous quarter (quarter-to-quarter/qtq), and the zone’s Consumer Price Index (CPI) recorded 5.3 percent year-on-year -year (yoy).

Based on data released by Eurostat, Monday (31/7/2023), eurozone GDP in the second quarter of 2023 was higher than analyst estimates of 0.2 percent. Meanwhile, the eurozone CPI was in line with analyst estimates, namely 5.3 percent.

Furthermore, the core CPI data which excludes food and energy costs registered a 5.5 percent (yoy) increase. This figure was higher than analyst estimates of 5.4 percent, even surpassing the main CPI measure.

Based on these data, the euro area economy is returning to growth while underlying inflationary pressures persist. This supports the initial argument for the European Central Bank to raise interest rates again.

Looking ahead, the economic outlook for the eurozone area is much bleaker, as the ECB warned last week, after raising interest rates for the ninth time since July 2022.

Corporate demand for eurozone loans has also fallen by the fastest rate on record. Real estate and business investment also showed signs of weakness. Now, with the deposit rate hovering at 3.75 percent, the ECB is at or nearing the end of a rate hike.

Eurozone Economy Keeps Growing However, ECB President Christine Lagarde also stressed that now the economy is in an uncertain environment. A further rate hike is an option when the ECB holds its next policy meeting in September 2023.

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