The euro area continues to grow strongly in 2022

Posted on January 28, 2022 at 1:11 pmUpdated at 2:03 pm on January 30, 2022.

2021 ended in various orders for the major economies of the euro area. In France, the second largest economy, GDP increased by 0.7% in the fourth quarter and increased by 7% annually. Spain, the fourth largest economy of the monetary union, has announced that its GDP will increase by 2% in the last three months of 2021 and by 5% for the full year. However, despite sustainable job creation, France was above 0.9%, but 4% below pre-pandemic GDP. The recovery in tourism has had a significant impact on the Spanish economy, albeit less than expected.

The end of the year was the least dynamic in Germany, Europe’s major economy. GDP decreased by 0.7% in the fourth quarter and increased by only 2.8% annually. Factories suffered heavily from supply difficulties and disruptions in the international value chain, and the importance of the industrial sector was at a disadvantage to the country. Car production in November was 35% lower than it was before the crisis. Result: Germany’s GDP is 1.6% below pre-pandemic levels. Therefore, the recovery of activity is much stronger in France than in Germany.

Purchasing power concerns

and now ? There are many factors that give us an optimistic view. “Fiscal policy will not weigh on growth in the euro area in 2022. The European Central Bank will not raise interest rates and monetary policy will continue to adapt,” sums Patrick Altus, senior economic adviser to Natixis. ..

However, Eurozone economic indicators released by the European Commission on Friday show that in many countries the still deteriorating health conditions are still squeezing consumer morale. The current surge in inflation has helped, and Europeans are a little more pessimistic about the future financial situation.

“The big problem in 2022 is purchasing power,” says Charles-Henri Colombier, economist at Rexecode. “In France, for example, a surge in inflation will reduce purchasing power per household. So far, the impact has been mitigated by the fiscal mechanism and the fact that households are beginning to take advantage of the savings they have accumulated during the pandemic. But this can’t last very long, especially because everything shows that prices, especially food prices, will continue to rise, so consumption can worsen this year. ” Economists will continue.

Another problem is that if inflation continues, tensions within the euro will inevitably occur and the interests of member states will differ on this issue. Not to mention the social conflicts that can recur.

China and US slowdown

There is also an international environment. Not only Ukraine’s geopolitics and tensions, but also the economic policies of its trading partners pose risks. “The United States will strengthen all brakes at the same time. Interest rates will rise, fiscal policy will no longer expand, and inflation will reduce purchasing power. Therefore, as with domestic demand in China, which was hit by the real estate crisis, the United States World trade will weaken as consumption slows, “Patrick Altus predicts.

This is not suitable for Germany, which relies heavily on China and the United States. In both countries alone, the export value of neighboring countries exceeds 200 billion euros. But “China’s contribution to Germany’s export growth fell to zero last fall,” said Philippe Waechter, director of economic research at OstrumAM.

In short, many risks weigh on growth in 2022. But for now, economists are optimistic. For example, the IMF expects growth of 3.9% in the euro area this year. A number that far exceeds the potential growth rate. Economic support was so strong during the pandemic that Europe should continue to catch up.