First came the coronavirus pandemic, then rising energy and food prices, followed by an aggressive turn in monetary policy and some economic turmoil. banking sector. Rarely its economy Eurozone suffered such successive blows. Since the standard means of predicting its course business cycle now less useful than usual, two different schools of situational analysis have emerged. Pessimists are demand driven. They claim that the aggressive increase interest rates from ECB exacerbated by the risk of a gradual credit crunch, will hold back eurozone growth until at least 2024. Optimists look at the offer. They believe that an easing of shocks from higher energy prices and an easing of pressure on international supply flows will contribute to a sustainable recovery. According to our estimates, growth in the Eurozone will be 0.7% this year and 1.6% next, we are clearly on the side of the optimists.

Recovering from the coronavirus pandemic, the eurozone economy grew at a pace well above the long-term trend of 1.3% per annum until the end of summer 2022. Yes, the start of the war in Ukraine in February 2022 and the rise in energy and food prices hurt. Shanghai’s port bans in April and May last year also took a heavy toll on the industry. However, domestic demand proved so resilient that none of these shocks prevented the economic recovery. Instead, it took the shock of Putin’s war in Ukraine, when gas prices surged amid heightened fears of shortages following Russia’s shutdown of the Nord Stream 1 gas pipeline in August last year, to stymie the eurozone over the winter.

Two major supply shocks that lowered growth and raised prices have reversed. Wholesale base prices for natural gas are now below the average price consumers paid in February. Even with the likely cessation of many government interventions in 2024, households and businesses will not see a new rise in electricity bills. They could benefit from a slight drop. In light of this, we expect eurozone growth to slightly outpace the long-term trend by the end of 2023.

* Mr. Holger Schmieding is an economist at Berenberg Bank.