Inflation in the EU is up almost 1% from last month. However, Europe is still in a somewhat good position, the worst lies ahead.
As the war in Ukraine continues to rage with Kyiv’s counter-offensive slowly approaching Kherson, Europe braces for the coldest months of the year. Even though this has been an unusually warm October, European energy prices are expected to soar.
As a confirmation that the worst is still ahead, inflation figures for October look grim for the EU. On average, inflation in the EU went up to 10.7%, a 0.8% increase from September. Food is 13% more expensive than it was one year ago, while energy is 43% more costly for the average household.
GDP growth has also slowed down. In the first quarter, when the Ukraine war started but many Covid relief packages were still into place, GDP growth was 0.8%. In the second quarter, ending in September, EU growth was at 0.2%. Still no negative growth, likely because of Summer vacations and spending, but a clear downward trend.
Therefore, many experts think the EU will go into a recession next year. “Overall, the picture remains bleak. The reopening of economies boosted services, but that effect is now fading. With interest rates up and the economic outlook uncertain, investment expectations are weakening, too. We therefore still expect the economy to contract over the coming quarters.” These are the words of Bert Colijn, a senior economist at ING. Others say it’s not a matter of when a recession will happen, rather how deep it will be.
A global issue
Inflation in the EU and Europe is certainly higher than in the rest of the Western world. The US and Canada, for example, can insulate much better and protect themselves from the energy crisis. This, however, does not mean they are not affected.
Inflation in the US is currently at 8.2%, less than in Europe but still at his highest in 40 years. Furthermore, growth in the US is non-existent, as many await the data from the Federal Reserve which will probably point at another downward quarter. If the EU goes into a recession next year, it will most definitely be joined by the United States.
Recession and energy prices hike are in the future. Nobody questions whether they will arrive, but the EU is taking many preventive measures to absorb the impact. Gas reserves all over Europe are completely full, and prices are as low as they were in June.
The real problem with the gas crisis, recession and inflation will probably come next year, when Europe will have to look for new sources of gas. Currently, the EU sits in a better position than Russia. Not a good position for sure, but one that can tick the balance in their favor.
