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Eurozone’s strong inflation beats ECB target

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After the recession caused by the COVID-19 pandemic, The ‘eurozone’ economy grew faster than expected in the second quarter.

Inflation exceeded the European Central Bank’s target of 2% in July as regulations to stop the virus were mitigated.

The initial estimate of the overall domestic product in the 19 eurozone countries grew 2% quarterly and 13.7% annually, said Eurostat on Friday.

However, economists surveyed by Reuters forecast growth was 1.5% quarterly and 13.2% annually.

Among the best-performing countries are Italy and Spain, the 3rd and 4th largest economies in the eurozone, with quarterly growth rates of 2.7% and 2.8%.

In Portugal, where the tourism industry is thriving, the economy grew by 4.9%.

The eurozone experienced two technical recessions since early 2020 and from late 2020 to early 2021 due to the Covid-19 regulations.

GDP in the region fell sharply during the first three months of the year due to Germany’s lockdown in November, which hindered private consumption.

Europe’s largest economy recovered growth in the second quarter but showed a weaker rebound of 1.5% quarterly.

In France, the second-largest economy in the eurozone, the economy grew by 0.9% as eased lockdown from May was expected.

However, many eurozone countries are facing new risks with the more infectious Delta variant.

The eurozone’s inflation rate accelerated from 1.9% in June to 2.2% in July, the highest rate since October 2018, and beat the economy’s average expectation of 2.0%, Eurostat said.

The key factor in driving the economy was energy prices, growing 14.1% annually. 

Contrary to the expected 0.7% dip, prices were up 0.9% annually as in June without the core inflation of volatile energy and raw food components.

The ECB policymakers had warned against sudden inflation and revealed they would not adjust policy because the factors behind the rise were temporary, like high oil prices. 

When the ECB announced its new strategy earlier this month, it promised a long period of a more straightforward policy, as inflation above this rise will likely decline in the next several years.

The eurozone unemployment rate fell to 12.517 million people in June, equal to 7.7%, down from 12.940 million people in May, or 8.0%.

Economists had forecast an unemployment rate of 7.9%.

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