The euro zone economy grew by 0.3% in the second quarter of 2023, beating expectations and avoiding a technical recession, according to official data released on Monday.
However, inflation in the 20-country bloc fell to 5.3% in July, down from 5.5% in June, remaining well above the European Central Bank’s (ECB) 2% target.
The growth figure for the second quarter was higher than the 0.2% forecast by analysts polled by Reuters, and followed a stagnation in the first quarter and a 0.1% contraction in the final quarter of 2022. The euro zone economy was boosted by strong performances from France and Ireland, which grew by 0.5% and 3.3%, respectively, as well as Spain, which expanded by 0.4%. Germany, however, the largest economy in the bloc, failed to post any growth.
The inflation figure for July was lower than the 5.5% expected by analysts polled by Reuters, and marked the third consecutive month of decline after reaching a peak of 6.1% in May. The drop in inflation was mainly driven by lower food prices, which rose by 10.8% in July, compared with 11.4% in June and 12.4% in May. Core inflation, which excludes volatile food and energy prices, remained unchanged at 5.5%.
The euro zone has been struggling with high inflation for the past year, partly due to rising energy costs and supply chain disruptions caused by the Covid-19 pandemic and Brexit. The ECB has responded by raising its main interest rate four times since July 2022, bringing it to 3.75% last week. The central bank has also revised its inflation forecast for 2023 to 5%, up from 4.4%.
However, some economists have warned that the euro zone economy is still facing significant risks and challenges, such as the spread of the Delta variant of the coronavirus, the slowdown in China’s growth, and the uncertainty over fiscal policy and trade relations with the US and the UK.