ECONOMIC growth in the Eurozone contracted in the third quarter, data showed today, hit by the European Central Bank’s (ECB) painful rate-hiking campaign and Germany’s weakening economy, but inflation slowed in October.

The European Union’s official data agency said the 20-country single currency zone’s economy shrank by 0.1% over the July-September period, after recording only 0.2% growth in the second quarter.

The figures reflected the difficulties facing the Eurozone, including the cost-of-living crisis and concerns over flagging demand in the global economy.

Although the Eurozone weathered shocks from the coronavirus pandemic and the war in Ukraine, fears grew over the economic effects of the Hamas-Israel war.

Data published by Eurostat today showed, however, the bloc’s economy – including members who do not use the euro – fared better, growing by 0.1% in the quarter.

Germany’s economy shrank by 0.1% in the third quarter, while Austria also recorded a contraction of 0.6%.

France, the EU’s second biggest economic powerhouse, only grew by 0.1%, and Italy’s economy stagnated in the third quarter, the data showed.

Germany was hit hard by elevated energy costs, a sluggish manufacturing sector and high interest rates designed to tame inflation.

Consumer price inflation in the Eurozone slowed to 2.9%, Eurostat data for October showed today, the lowest rate since July 2021 when it reached 2.2%.

The figure was down from 4.3% in September and lower than predicted by analysts who expected inflation to remain above 3%.

The inflation rate was closer to the ECB’s 2% target. Despite higher borrowing costs, the ECB remained steadfast behind its mission to tame red-hot inflation.

But signs of weakness in the economy as well as ebbing price pressures prompted the ECB to leave interest rates unchanged earlier this month after raising them in each of their previous 10 meetings.

“Continued deflation in energy prices and easing food price inflation were the main drivers,” Tomas Dvorak, senior economist at Oxford Economics said, adding that he expected inflation to “dip below target” in 2024.

“We think the ECB will start with rate cuts already” as early as in April, he said.

Inflation slows

Eurozone inflation was down from its peak of 10.6% in October last year following Russia’s invasion of Ukraine, which sent energy prices spiralling.

Core inflation, which stripped out volatile energy, food, alcohol and tobacco prices, also slowed to 4.2% in October from 4.5% in September, Eurostat said.

Core inflation is a key signal for the ECB.

Belgium and the Netherlands were the only countries where consumer prices fell, by 1.7% and 1% respectively, in October, Eurostat said.

Energy prices in the Eurozone fell much further in October, sinking by 11.1% on the back of a drop of 4.6% the previous month.

The rise in food and drink prices also slowed, reaching 7.5% in October compared with 8.8% in September, Eurostat said. – AFP, October 31, 2023.