Eurozone’s Economy Outpaced China and U.S. in 2022
The currency-area grew at a faster clip than its global peers, reversing traditional positions
The currency-area grew at a faster clip than its global peers, reversing traditional positions
The eurozone economy grew faster than China and the U.S. last year, underlining how the fading Covid-19 pandemic continues to scramble traditional patterns of global growth.
Figures released by the European Union’s statistics agency Tuesday showed the currency- area’s economy grew at an annualised rate of 0.5% as higher energy costs weighed on household spending. This translated into 3.5% growth in gross domestic product for 2022 as a whole, a faster rate than seen in either China or the U.S.
This is unusual. For decades, the big three engines of the global economy have had a pretty stable ranking: China grew fastest, followed by the U.S. and then the eurozone. This all changed last year because of the staggered manner in which major economies reopened in the wake of the pandemic.
Figures released Thursday showed the U.S. economy grew by 2.1% in 2022, a sharp slowdown from the 5.9% rate of expansion recorded in 2021. Earlier this month, China’s statistics agency released figures that showed the world’s second-largest economy grew by 3%, down from 8% the previous year.
The last time that the combined national economies that make up the eurozone grew at a faster pace than that of either China or the U.S. was in 1974. The U.S. economy has typically outpaced Europe’s over recent decades largely because its population has grown more quickly. More recently, the U.S. has led Europe in the development of fast-growing technology sectors.
Last year’s unusual growth ranking largely reflects the impact of the Covid-19 pandemic on the world economy, with the timing of lockdowns and re openings leading to big swings in growth, as well as high rates of inflation.
It is an effect that is unlikely to last. As China abandons its zero-Covid policy, it is likely to reclaim its position as the fastest-growing of the big three economic areas. And the war in Ukraine is having a bigger impact on the economy of Europe than that of the U.S. or China, as the slowdown in the last quarter of 2022 testifies.
“2022 was just a weird, weird year,” said European Central Bank President Christine Lagarde during a panel at the World Economic Forum’s annual meeting in Davos earlier this month. “Those are not normal numbers, this is not the usual ranking that you have.”
In the eurozone, the influence of the pandemic on the economy was so strong last year that it offset that of Russia’s invasion of Ukraine and the surge in energy prices it prompted.
While China experienced a series of lockdowns in pursuit of its zero-Covid policy, the eurozone enjoyed its first full year without tight restrictions, and a boost to activity that the U.S. had experienced a year earlier.
The big three economies locked down hard in 2020. But the U.S. reopened more fully from early 2021, outpacing the eurozone and China in the first three months of that year in particular. The eurozone’s reopening boost started later, and carried over into the first half of 2022 as its key tourism industry rebounded.
This year is likely to see the pandemic continue to have a big impact on growth—this time in China. The country lifted many of its zero-tolerance pandemic controls in early December in an abrupt change of course. While that led to an increase in Covid-19 infections and deaths, it also opened the door to a sharp economic rebound in the world’s second-largest economy.
For this year, the United Nations expects China’s economy to grow by 4.8%. It expects both the U.S. and the eurozone to slow, to 0.4% and 0.2% respectively. If it is correct, the normal growth ranking will be restored, although at lower-than-normal rates of growth. And from 2024, the pandemic’s impact is set to wane, unless a more deadly, rapidly-spreading coronavirus variant emerges.
“By 2024 we should be out of the woods,” said Hamid Rashid, head of the U.N.’s global economic monitoring unit. “We are still having the lingering impact of the pandemic in 2022 and 2023.”
High inflation rates, partly a legacy of the pandemic, are also expected to fade by 2024. Inflation rates began to surge in early 2021 as the reopening of the U.S. and other economies led to a surge in demand for goods and services at a time when global supply chains were still impaired.
According to a measure of supply-chain pressures compiled by the Federal Reserve Bank of New York, the blockages caused by the pandemic reached a peak at the end of 2021, and then eased steadily through the first nine months of last year. But that improvement in supply chains stalled in the final three months of 2022 as China imposed lockdowns to counter fresh outbreaks of Covid-19. Supply chains seem set to continue their slow return to prepandemic conditions in 2023 after the zero-tolerance strategy was abandoned.
Rates of inflation around the world appear to be easing, but it has taken unusually aggressive action by global central banks to get to that point. The Federal Reserve has raised interest rates by more than 4 percentage points since March, the largest move in a single year since 1980. The European Central Bank has moved at a slower pace, pushing up its policy rate by 2.5 percentage points starting in July, but that is the fastest increase since it was founded in 1998.
Both central banks are expected to raise their key interest rates this week, with the ECB likely to tighten more than the Fed. Further increases in borrowing costs will affect businesses and households not just in the U.S. and Europe, but around the world.
“The global effects are real, but they are not taken into account by the systemically important central banks,” said Mr. Rashid at the U.N., “it is harder for developing countries to borrow and invest.”
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CommSec research reveals this state is leading the country in economic growth, unemployment, construction and dwelling starts
South Australia is currently the strongest state or territory economy in the country, with economic activity 9.1 percent above its decade-average in the December quarter, according to CommSec research. NSW was second with economic output running 8.6 percent above its long-run average, followed by Victoria with 8.5 percent, the ACT at 8.3 percent and Western Australia at 6 percent.
Economic activity in both Queensland and Tasmania was 4.5 percent above average while the Northern Territory underperformed its long-term average by 0.5 percent.
The CommSec research ranks states and territories on several key economic metrics and compares the latest quarterly data with each area’s decade average. South Australia ranks first on four of the eight key indicators. They are economic growth, unemployment, construction and dwelling starts.
Western Australia ranks first on population growth and business and equipment investment. Population growth has been a key element in Perth and regional Western Australia becomingthe country’s hottest property markets over the past 12 months. CoreLogic figures released this week show home values are up 21.1 percent in Perth and 13.3 percent in the state’s regions.
Despite high inflation, retail spending remained above the long-term average in all states and territories in the December quarter. The ACT led with retail expenditure 12.2 percent higher than its long-term average, followed by Western Australia with 11.3 percent, Victoria at 11.2percent and Queensland at 11.1 percent.
Queensland is in the top spot for new home loans. Propelling this is very strong internal migration and a doubling of the First Home Owners Grant to $30,000 from 20 November last year. New home loans issued to first home buyers in November surged to a 15-month high, according to data from the Australian Bureau of Statistics. Queensland is currently the second strongest housing market, with home values up 16.1 percent in Brisbane and 11.2 percent in regional areas over the past year.
In all states and territories except the Northern Territory, housing finance commitments remained above decade averages in the December quarter. The value of home loans in Queensland was 21.1 percent higher than the state’s long-term average. The next strongest was Western Australia, up 17.5 percent, South Australia, up 14.2 percent, and the ACT, up 12 percent. The new CoreLogic data reveals 15 consecutive months of growth in the national median price, despite high interest rates.
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