The eurozone economy grows by 0.7%, despite the gas crisis

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Eurozone economic growth accelerated in the quarter to 0.7%, well above expectations of 0.2%, but the region’s outlook is hurt as Russia continues to cut gas supplies, according to Eurostat data, CNBC reports.

In the first quarter, the GDP of the euro area advanced by 0.5%.

The figures contrast sharply with negative data on the US economy for both the first and second quarters, as the euro zone continues to benefit from the reopening of its economy after the pandemic.

However, a growing number of economists expect the eurozone to enter a recession next year, with Nomura, for example, forecasting a 1.2% annual contraction and Berenberg pointing to a 1% slowdown.

Even the European Commission, the executive arm of the EU, has admitted that a recession could occur, as early as this year, if Russia completely cuts off gas supplies to the region.

Officials in Europe have become increasingly concerned about the possibility of gas supply interruptions, with the president of the European Commission, Ursula von der Leyen, stating that Russia is “blackmailing” the region.

Russia has repeatedly denied that it is using fossil fuel supplies as a weapon. However, Gazprom, Russia’s majority state-owned energy giant, cut gas deliveries to Europe via the Nord Stream 1 pipeline to 20% of maximum capacity this week.

In total, c12 EU countries are already suffering from partial interruptions of gas supplies from Russia, and for several others supplies have been completely stopped.

The European Commissioner for the Economy, Paolo Gentiloni, said that the latest growth figures were “good news”.

“Uncertainty remains high for the coming quarters: we must maintain unity and be prepared to respond to an evolving situation as necessary,” he said.

The GDP readings come at a time of record inflation in the Eurozone. The European Central Bank raised interest rates for the first time in 11 years earlier this month, more aggressively than expected, in an effort to lower consumer prices.

However, the acceleration of inflation in the region is driven by the energy crisis, which means that further cuts in Russian gas supplies could further increase prices.

Eurostat also published revised inflation figures on Friday, putting annual inflation at 8.9% in July, up from 8.6% in June.