The euro zone’s economy expanded more quickly in the second quarter of this year, but Russia’s continued gas supply cuts hurt the region’s prospects. According to Eurostat, Europe’s statistics office, the 19-member EU recorded a GDP rate of 0.7% in the second quarter, exceeding predictions of 0.2% growth. It follows a GDP growth rate of 0.5% in the first quarter. The figures show that the euro zone is still gaining from the reopening of its economy following the epidemic, in stark contrast to the negative annualised readings coming out of the United States for both the first and second quarter.
The euro zone is expected to enter a recession next year, according to an increasing number of economists. Nomura, for instance, predicts a 1.2% annual contraction, while Berenberg predicts a 1% slowdown. Even the executive branch of the EU, the European Commission, has acknowledged that if Russia entirely cuts off the region’s gas supplies, a recession may be in the works, possibly as soon as this year. As President of the European Commission Ursula von der Leyen recently claimed, Russia is “blackmailing” the area, officials in Europe are growing more anxious about the likelihood of a suspension of gas supplies. Russia has consistently denied attempting to weaponize its supplies of natural fuels.
The Nord Stream 1 pipeline, which transports gas to Europe, was only used 20% of its potential capacity this week by Gazprom, the majority state-owned energy giant of Russia. Twelve EU nations currently have partial Russian gas supply problems, and a few more have had their gas supplies entirely cut off.
The GDP readings come at a time when the euro zone is experiencing record inflation. In an effort to lower consumer costs, the European Central Bank increased interest rates earlier this month for the first time in 11 years and more sharply than anticipated. However, the energy issue is what is causing the region’s skyrocketing inflation, so future reductions in Russian gas supply could cause prices to rise much higher.