Finance & Economics

Eurozone Inflation Sinks to Two-Year Low

In the Eurozone, the inflation rate has fallen to the lowest level in more than two years.

Eurozone Inflation Sinks to Two-Year Low

Experts note that as a result of the introduction by financial regulators of the policy of an unprecedented increase in interest rates, the economy in this region has shrunk. In October, in the Eurozone, which is a monetary union of 20 EU member countries and 4 states that use the euro, the consumer price growth rate was recorded at 2.9%. In September, this dynamic was more intense. During the first month of autumn, consumer prices in the Eurozone increased by 4.3%.

In a separate release, Eurostat reported that in the specified economic region, according to the results of the third quarter of this year, gross domestic product decreased by 0.1%. This result does not correspond to the initial forecasts of stagnation.

Official data, according to experts, indicate that 10 consecutive decisions of the European Central Bank to raise rates helped bring the inflation rate back to the target of 2%, but at the same time, this policy has become a factor of negative impact on the financial situation of households and companies, as the cost of loans has sharply increased.

German chemical giant BASF SE reported that, according to forecasts, by the end of this year, its sales volumes and profit indicator will be worse than initial expectations. The French retail company Carrefour said that its customers increasingly prefer the offers of cheaper brands, refusing consumer interaction with this firm.

The GDP indicator observed in the Eurozone contrasts sharply with the same indicator in the United States, where a positive dynamic is recorded. Last week it became known that by the end of the third quarter, the American economy showed growth of 4.9% year-on-year. This rate of positive dynamic is the most intense in almost two years. Experts say that the growth of the American economy is due to the high level of consumer spending. Also, according to them, in this case, a stable situation in the labor market has become a positive influence factor. Unemployment in the United States has hovered just below 4% for 20 consecutive months.

US Treasury Secretary Janet Yellen said that the data for the third quarter indicate that the economy of this country is doing very well. She also noted that currently there are no expectations of continued economic growth at an intensive pace similar to those recorded for the period from July to September. According to her, there is something that can be designated as a soft landing.

For the current situation in Europe, one of the most negative factors is the situation in Germany, which is the largest economy in this region. On Monday, October 30, it became known that the volume of production in the said country decreased by 0.1% in the third quarter. During the year, GDP in Germany did not show a positive dynamic. Currently, according to experts, a recession is a realistic prospect for Berlin.

At the same time, the Italian economy is also going through a not-very-favorable period. In this country, the GDP for the third quarter did not change compared to the previous period of the same duration. In the second quarter, the decrease in this indicator was 0.4%. For the President of the Council of Ministers of Italy, Giorgia Meloni, the current state of affairs is difficult. It is trying to ensure investments in the country’s economy and at the same time to contain the huge debt of the state. Italy is currently the No. 3 economy in the Eurozone.

In France, GDP in the third quarter showed growth of 0.1%. The economy of this country is the second largest in Europe. Economist Eleonora Mavroeidi says that there are currently signs of improvement in the situation in France. According to her, steady investments in business and the revival of household demand are recorded in this country.

ECB President Christine Lagarde announced the expectation of a decline in production in Europe. In her opinion, the economy will remain weak until the end of this year. She says that against the background of a consistent decline in the rate of inflation, the continued recovery of real incomes, and an increase in demand for exports from the Eurozone, there are prospects for improving the economic situation in the coming years.

Christine Lagarde also said that at present, talk about lowering interest rates is premature, since the mission of officials in this direction has not yet been completed. Markets are of the opinion that the ECB deposit rate will remain at 4% for at least the next six months.

Experts believe that the increased borrowing costs will return the price increase to the target in 2025. In October, this indicator decreased to 4.2% compared to 4.5% a month earlier.

The volume of production in the Eurozone in the third quarter did not show a dynamic that could give reasons for optimism. Experts say that the economy of this region is likely to succumb to a moderate recession.

Currently, the ECB continues to adhere to its expectations about the restoration of the pan-European economic system next year. Natixis economist Dirk Schumacher notes that this vision of the future is based on a forecast that does not foresee a deterioration in the global situation and assumes the sustainability of investment. The expert noted that in modern realities, the growth of interest rates has a historically high level of intensity, which is why, in his opinion, the models of the past should not be considered as a prism for the perception of the current state of affairs.

Serhii Mikhailov

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Serhii’s track record of study and work spans six years at the Faculty of Philology and eight years in the media, during which he has developed a deep understanding of various aspects of the industry and honed his writing skills; his areas of expertise include fintech, payments, cryptocurrency, and financial services, and he is constantly keeping a close eye on the latest developments and innovations in these fields, as he believes that they will have a significant impact on the future direction of the economy as a whole.