France, Spain smash economic growth estimates despite recession fear

After a surprise contraction at the start of 2022, French output rose by 0.5% in the three months through June -- more than the 0.2% median forecast in a Bloomberg survey of analysts.

Fri, 29 Jul, 2022 - 08:22

Economic expansion in France and Spain beat expectations by a distance, putting them on a firmer footing as surging inflation and the risk of a Russian energy cutoff threaten to tip Europe into a recession.

After a surprise contraction at the start of 2022, French output rose by 0.5% in the three months through June -- more than the 0.2% median forecast in a Bloomberg survey of analysts. In Spain, gross domestic product jumped by 1.1% -- almost three times the estimated pace.

Highlighting the difficulties still ahead, however, inflation in both countries reached fresh records, exceeding economist predictions.

The data are part of a stack of numbers due Friday that culminates with gross domestic product from the 19-member euro area as a whole. Analysts see a small gain of 0.2%.

Europe’s outlook for the coming months is extraordinarily uncertain. While the summer tourism season is handing southern countries a boost, projections for later on are being downgraded as the Kremlin’s energy threats, lingering supply snarls and record inflation depress demand and output.

The International Monetary Fund said this week that Germany, Europe’s No. 1 economy, is set to be the worst performer in the Group of Seven nations in 2022 due to the reliance of its outsized industrial sector on Russian natural gas.

Spain

Strong household consumption drove Spain’s surprise acceleration, with a further boost likely to come in the summer from an influx of foreign tourists, even as surging inflation dents consumption.

Prices jumped by a record 10.8% this month as a spike driven by electricity and heating costs spreads to food and services, separate data showed. The cost-of-living squeeze has prompted Prime Minister Pedro Sanchez to propose a windfall tax on profits at energy firms and banks, to fund fuel subsidies and provide other aid.

The government has cut next year’s economic-growth forecast to 2.7%, though that’s still well above the International Monetary Fund 2% projection.

France

July saw another all-time high for inflation in France -- the sixth month in a row a new record has been set.

Prices jumped 6.8% compared with 6.5% in June, despite the government spending about €25bn to mitigate soaring energy costs. Economists had expected a 6.7% advance in the EU harmonized measure.

While the government’s measures -- which include price caps for electricity and natural gas -- have kept inflation cooler than in the rest of Europe, prices are still increasing at the fastest pace since the 1980s according to a national gauge. What’s more, the current “tariff shield” is set to expire at year-end.