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IPC: “Europe to face headwinds in coming quarters”

IPC June 2022 Economic Outlook
IPC: “Europe to face headwinds in coming quarters”

“While Europe avoided a decline in the first quarter, it will continue to face a multitude of headwinds in the coming quarters," DuBravac said

IPC’s June Economic Outlook report claims that economic data from the last month makes the U.S. economy appear worse than it probably is, while the opposite appears to be true for Europe and China.

The data shows that while the U.S. economy fell 1.5% in the first quarter, in Europe, the EU economy grew 0.4% (1.8% annualized). The factors that drove the US decline, however, are likely to be temporary and should largely reverse in the second quarter, Shawn DuBravac, IPC chief economist said in the report. Conversely, he claims the next few quarters will be very challenging ones for Europe.

“While Europe avoided a decline in the first quarter, it will continue to face a multitude of headwinds in the coming quarters,“ DuBravac said. “Eurozone inflation hit a record 8.1% in May, driven by surging energy and food costs fueled by Russia’s war with Ukraine. The European Central Bank (ECB) has a very challenging environment to contend with. In the U.S., the Federal Reserve faces a relatively strong economy and too much inflation. But in Europe, the ECB faces a weak economy and too much inflation. It has thus far resulted in the ECB moving more cautiously than the Fed. The ECB will likely raise rates three times this year, effectively ending its negative interest rate policy. This will be the first time in a decade that the ECB has lifted rates.”

The report found that in the EU, the electronics industry saw output increase 0.8% in February but fall 1.2% in March, the first decline since October 2021. Manufacturing output is up 0.7% over the last year and up 1.7% since the start of the pandemic. The sector is up 16.6% from prepandemic levels.

China

Although China’s economy grew 4.8% year-over-year in the first quarter, DuBravac explained that the economy is slowing rapidly and the country is likely to miss its growth target of 5.5% for 2022. The unemployment rate across 31 major Chinese cities rose to 6% in March, the highest on record according to official data going back to 2018. Many areas of China are just now starting to emerge from extended COVID lockdowns that began in April suggesting the economy likely slowed sharply in the second quarter. China’s zero COVID policy likely means more lockdowns in the future and further supply chain disruptions.

“Economic data from the last month makes the U.S. economy appear worse than it probably is, while the opposite is potentially true for Europe and China,” said Shawn DuBravac, IPC chief economist. “While Europe avoided a decline in the first quarter, it will continue to face a multitude of headwinds in the coming quarters.”

ipc.org

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