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Europe avoids recession but inflation takes hold

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While public health must come above all else, it’s fair to say the COVID-19 pandemic has taken its financial toll on the world. Billions of people spent time under lockdown conditions, with entire industries shut down indefinitely almost overnight. Staggered openings and false starts have prolonged the pain for many businesses, but as we begin to emerge out the other side, many major western economies have survived in better health than first feared.      

The strong progress of vaccination campaigns throughout 2021, coupled with a widespread easing of restrictions and a subsequent uptick in tourism, has helped countries across Europe avoid entering deep recession. 

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Below we take a closer look at the numbers before analysing how Europe’s speedy recovery has accompanied a major increase in inflation.

The European economy recovers faster than expected

2021 may have been a turbulent year, but the European Commission reported a GDP growth rate of 14% in the second quarter. It was the highest reading on record and as high as the fall caused by the first wave of the pandemic. 

In the third quarter, the EU economy officially moved from recovery into expansion as output returned to pre-pandemic levels. The labour market also continued to improve, with around 1.5 million new jobs created in the second quarter and the unemployment rate declining to just above the rate recorded in August 2019. 

The rate of economic recovery remains vulnerable to changes in the pandemic and global supply chain issues. But overall, a resumption of economic activity and release of consumer demand has improved the outlook for most European nations. Those interested in spread betting and other market investment methods will have a keen eye on what comes next. 

High inflation rates a knock-on effect of growth

Inflation has remained relatively low across Europe for many years now. But the strong resumption of activity in the EU and in other advanced economies such as the United States has gone hand in hand with a steep rise, causing serious concerns for residents.

The rate of 4.1% in October 2021 is the joint highest seen since data began being recorded in 1997. The situation has worsened since then, with a rate of 7.8% recorded for the EU in March 2022, many countries reaching double figures, and numbers as high as 61.1% seen in Turkey. 

The surge has primarily been driven by the rise in energy prices and supply constraints, both of which have been exacerbated by Russia’s ongoing invasion of Ukraine. 

What the future holds

The European Commission remains confident that inflation will ease in 2023. But as of right now, there is debate over whether monetary policies need tightening to control the historic highs seen more recently. The actions of the European Central Bank will be hugely influential in the months ahead.