Economy of the EU is rebalancing with acceptable inflation rate in the euro area
Economy of the 27 EU member states emerged from the post-covid recession. Its performance in the second quarter of this year improved significantly. Thanks to this, the employment rate increased, while the inflation rate practically achieved the target of the European Central Bank.
The Gross Domestic Product (GDP) in the EU increased by 13.2 percent year-on-year in the second quarter of 2021, while in the euro area the economic growth was even 0.4 percentage point higher. From January to March 2021 (Q1), economies of both groupings reported a year-on-year decline of 1.3 percent.
In the quarter-to-quarter comparison (Q2), economy of the EU and the euro area improved by 1.9 and 2 percent, respectively. In the first quarter, the EU and euro area economies decreased by 0.3 and 0.1 percent, respectively. This results from the recent data by Eurostat. The EU’s 27 states are relatively close to erasing the impacts of the coronavirus shock. They may succeed by the end of the year, depending on the development of the pandemic and, predominantly, on anti-epidemic measures being taken or not in the end of the year.
The strongest growth in the GDP was seen by the Southern Member States. The fastest growth was reported in Spain (nearly 20 percent year-on-year), Italy (17.3%), Portugal (15.5%) and also in France (18.7%). The countries with the slowest growth include Finland (7.4%) and the Czech Republic (7.8%). The strongest European economy (Germany) reported a year-on-year GDP growth of 9.2 percent in the second quarter, which is a key figure for the growth of the EU as a whole.
The employment rate has developed hand in hand with the economic performance growth. In the second quarter, the rate in the EU and the euro area increased by 0.6% and 0.5%, respectively, quarter-to-quarter. This was the pace of increasing the number of employed people in both groupings from 2015 until the coronavirus crisis. The labour market is thus sending signals that the EU economy is gaining strength and coming out of its slump. The same is indicated by the quarter-to-quarter comparison.
The growth rate of inflation is also in the focus of European economic and political institutions. A fast response of European governments, the European Commission and the European Central Bank acting together saw that in July, the year-on-year inflation exceeded the two-percent level. According to Eurostat, the rate was 2.5 percent in the EU and 2.2 percent in the euro area. Considering this rate of inflation is close to the ECB’s target of 2.0%, we may assess the outlook of the EU economy, underpinned by the Q2 growth in GDP and employment rate, as cautiously optimistic.
Tony Christoforou General Manager Goldenburg Group Ltd.
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