FRANKFURT, Germany (AP) – Even as the U.S. economy beat expectations, Europe’s economy grew modestly in the April-June quarter, highlighting the persistence of transatlantic growth disparities. It became. Germany, Europe’s leading economy, remained in the doldrums even as reluctant consumers saved more than they spent on new homes and cars.
The gross domestic product (total output of goods and services) of the 20 countries that use the euro currency grew by 0.3% in the second quarter, according to official figures released by the European Union’s statistics agency Eurostat on Tuesday. Germany contracted again, with production falling by 0.1%.
Tuesday’s figure followed the same 0.3% performance from the January-March period and was the first significant increase after more than a year of stagnation at just above or below zero.
In contrast, the U.S. economy grew 0.7% in the second quarter compared to the first quarter, or an annualized rate of 2.8%. In addition to American consumers spending freely, the widening budget deficit and subsidies provided by the Inflation Control Act for business investments such as renewable energy, semiconductor production, and infrastructure are also contributing to U.S. growth. .
These two trends are reversing in Europe, where consumers are saving at record levels and governments are beginning to limit spending to reduce budget deficits.
“The U.S. outperformance is mainly due to strong consumer spending and domestic investment,” said Thomas Obst, senior economist at the German Institute for Economic Research in Cologne. “Fiscal policy support in the United States was higher than in other developed countries, with overall spending accounting for 25% of GDP,” he said, while the impact of rising interest rates on lending and the economy would be smaller than in Europe.
The moderate growth rate in the first half of this year follows five consecutive quarters of virtually zero growth due to a burst of inflation that took away consumer purchasing power. Energy prices have soared as Russia cut most natural gas supplies in 2022 due to its invasion of Ukraine, and as the global economy recovers from the pandemic and supplies of parts and raw materials tighten.
Although these headwinds have subsided, Europe faces lingering effects as new collective agreements restore real wages, albeit with delayed government aid and tax cuts aimed at phasing out and mitigating the energy crisis. . Governments around the world have turned to reducing fiscal deficits that have ballooned due to energy shortages.
Economist Obst said Europe had avoided mass layoffs by paying employers to keep their employees employed during the pandemic, but these measures “limited the euro area economy’s ability to adapt” and drained resources. He pointed out that the company had moved to a new business. “It’s a cliché to say, but much of the output gap is due to greater business dynamism in the United States than in the euro area,” he said.
Salomon Fiedler, an economist at Berenberg Bank, said long-term factors such as higher taxes and burdensome regulations are also holding back growth in Europe, with average annual real GDP growth at least 1 percentage point lower than in the United States. He said he was deaf. “If the eurozone wants to catch up with the United States economically, it needs to increase productivity and increase investment in productive capital.”
In the case of Germany, politicians and economists say the permitting process is overly complex, it takes years to get the green light to build new wind energy facilities, there is a shortage of skilled labor, and there is a lack of investment in infrastructure. He said delays are among the main issues the country needs to address. .
The European Central Bank’s interest rate hikes brought inflation down to 2.5% in June from 10.6% in October 2022, but also curbed construction activity and stemmed the long-standing rise in house prices. New car sales rose 4.3% in the first half of this year compared to the same period last year, but remain about 18% below pre-pandemic levels.
Another factor is the unusually high level of precautionary savings among European consumers, with the savings rate reaching 15.4% in the first three months of this year, the highest on record outside of a pandemic year. . Reasons for saving more money include the chance to earn higher interest rates by saving despite the low unemployment rate of 6.4%, the feeling of poverty due to falling house prices, and concerns about the future. is possible.
Jack Allen-Reynolds, deputy chief eurozone economist at Capital Economics, said high savings rates and consumer surveys showed “very little intention to make large purchases.”
