How Europe’s Economy is Struggling as Inflation Squeezes Consumers

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The European economy only grew 0.1% in the first three months of this year, which meant that it avoided a financial recession and is gaining some momentum. In contrast, the U.S. had a poor growth rate the day before and people are afraid that it could face recession soon. Plus, inflation has made people not willing to spend their money as much.

The countries that use the euro, like France and Germany, had a better quarter of economic growth compared to the last three months in 2022. This was because the weather stayed milder than normal, which made it easier to get energy supplies from natural gas sources. Also, since Russia stopped supplying energy to Europe due to its fight against Ukraine, governments and businesses worked hard to find other ways to keep homes warm, make electricity, and run factories.

Industry has started to become active again, and China getting rid of their coronavirus rules made the whole world’s economy look brighter. Plus, because of mild weather outside, building activity got the chance to start earlier than usual.

Inflation is making it difficult for people to buy things like food and clothes because prices are increasing faster than the money they make. The European Central Bank is trying to fix this by raising interest rates, which makes it more expensive for people to borrow money either for purchases or for business investments.

In March, the yearly cost of things in the eurozone dropped from 8.5% to 6.9%, but it’s still higher than the 2% that experts say is best for the economy. The European Central Bank (ECB) probably will decide to raise prices again during their meeting on Thursday.

Two banks (Silicon Valley Bank in the U.S. and Credit Suisse) recently failed or had to be taken over by competitors, which could make it harder for other banks to loan their money out. This might help reduce inflation but will likely hurt economic growth too.

Economist Nicola Nobile from Oxford Economics said that the economy is slowly expanding, and this removes any worries of a winter recession. But unfortunately, inflation will continue to be an issue for the whole year which could slow down growth even more. She explained that we shouldn’t expect anything too drastic or amazing this quarter because there isn’t a strong enough “driver” powering it.