Recession has been waiting for three years – Newspaper Kommersant No. 203 (7404) dated 01.11.

Leading indicators and the first Eurostat estimates show that by the end of 2022, a minority of EU and euro area countries have a chance to enter a recession – now Latvia, Austria and Belgium are on the list of applicants, the rest of Europe is still showing growth. Inflation for the EU is a more acute problem, and even outside the energy one: without it, prices in the euro area grow by 6.9% year-on-year against 2% a year ago, and food price growth reached 12.5% ​​year-on-year in October .

Eurostat data on the dynamics of economic growth for the third quarter of 2022, including estimated ones, and inflation in October show that the military operation of the Russian Federation in Ukraine and the humanitarian and fuel crises that followed it are not the only explanation for the worsening economic situation in the euro area. The picture of the crisis is not exhausted by the gas issue, it is more complex.

Estimates of the GDP of the euro area and the EU as a whole for the third quarter allow us to confidently say that Europe will not enter a recession by the end of 2022, i.e., two quarters in a row of a decline in GDP in the measurement “on the previous quarter”. Both for the euro area and for the EU, July-September was a period of weakened growth within the average rates over the past two decades – 0.2%. In the second quarter, growth was recorded at 0.8% in the euro area and 0.7% in the EU as a whole, according to Eurostat.

In the “year-on-year” dimension (it is more popular in Russia), both the EU and the euro area are growing quite quickly, although the pace is falling slightly: these are 2.4% and 2.1% GDP growth by the third quarter of 2021, respectively.

In a standard measurement for the world, the risks of entering a recession among European countries that have already published statistical reports are three countries – Latvia with a decline of 1.7% of GDP after zero growth in the second quarter, Belgium with a decline of 0.1% of GDP after an increase of 0.5-0.6% of GDP in previous quarters and Austria with the same fall after strong by local standards (1.9%) GDP growth in the second quarter. So far, in all EU countries, GDP growth rates are positive year-on-year, except for Latvia (minus 0.4%). Most likely, formal statements about the European recession can be made no earlier than April 2023 or even later if the expected gas crisis stops a significant part of European industrial production. At least this has not happened yet, although the reduction in supplies from the Russian Federation began in the summer. We also note that the reduction in the supply of EU goods and services to Russia has little effect on the dynamics of the EU GDP, in contrast to the dynamics of the RF GDP.

Peak inflation of 10.7% year-on-year in October 2022 in the euro area was driven mainly by energy prices, with their growth rate amounting to 41.9% (40.7% in September). However, it is impossible to attribute everything to a reduction in oil and gas supplies from the Russian Federation: it is apparently incorrect to call inflation in Europe “non-monetary”, since an increase in energy prices under the neutral budgetary policies of the EU countries and with the actions of the ECB adequate to the shock would lead to a limitation of growth or even deflation in “non-energy » sectors. This is not happening: inflation excluding energy in the EU in October was 6.9%, in services – 4.4%, and in October all components of the consumer price index accelerated.

Part of the effect seems to have been exhausted already: in the Baltic countries, which are most severely affected by rising prices, inflation was lower year-on-year in October than in September, as in France, Cyprus and the Netherlands. It should be noted that the last of the relatively large economies of the EU is the most affected by inflation, in October it amounted to 16.8% there (in France – 7.1%, in Germany – 11.6%). In most EU countries, inflation is still accelerating, but in Estonia, Malta and Greece, October was a month of general price decline. Probably, at least part of the effect of high inflation in the EU is the adjustment of national energy prices to high European averages: this is the final process, while the general high (but not huge) inflation background will remain with Europe for a long time.

Dmitry Butrin