After the extraordinary economic recovery after the pandemic, is there already a recession? Economic conditions in the western world suddenly slowed in the first quarter. In France, gross domestic product (GDP) remained stagnant, according to data released by the National Institute for Statistical and Economic Studies (Insee) on Friday, April 29th. In the euro area, it rose very slightly, by 0.2%, but Italy is in negative territory (−0.2%), according to Eurostat. Outside the euro area, Sweden’s GDP fell by 0.4%. Finally, in the United States, data released on Thursday revealed, to everyone’s surprise, a drop of 0.36%.
The brake hit was expected, but it turns out to be stronger than expected. These data include two months during which the war in Ukraine had not started, the invasion took place only on February 24, but the slowdown, caused by the bursting of inflation, had begun before the Russian invasion.
Minimal room for maneuver
In these countries, a common factor explains this slowdown: the decline in household consumption, to −1.3% in France or −0.6% in the United States. You just have to go shopping to be convinced: prices are soaring. This of course applies to energy (+ 38% in the eurozone in one year, in April) but also to food (+ 6.4%), while wages do not follow. “High inflation, with declining purchasing power and growing uncertainty, is therefore already having a negative impact on household consumption and investment.”remarks on France Eric Dor, director of economics at Ieseg, a business school.
In the euro area, inflation remained very high in April, at 7.5% year-on-year, the highest since the introduction of the single currency. The shock of the war in Ukraine, which has pushed up the prices of gas and oil and most commodities, is striking hard and there is nothing to suggest that the situation could improve in the short term. “Small GDP growth in the first quarter means that the eurozone should avoid a technical downturn in the first half of the year [définie comme deux trimestres successifs de baisse du PIB]but GDP is likely to shrink in the second quarter “, says Andrew Kenningham of Capital Economics.
Gradually, rising commodity prices spread throughout the economy. The so-called inflation “subjects”, excluding energy, food, tobacco and alcohol prices, has now reached 3.5% throughout the euro area. The shock compared to 2021, when the same underlying inflation in April 2021 was only 0.7%, is significant. In particular, this means that companies now pass on part of the cost increase to their prices. And in services, inflation shows a nose, with a rise of 3.3%.
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