While Europe seemed on the edge of recession at the beginning of winter, the outlook has brightened as the region's CPI ticked down over the last three months, and improving energy dynamics have fended off the economic downturn that seemed inevitable at the time.
In the countries that use the euro, inflation fell from a record high of 10.6% in October to 8.5% in January, according to preliminary data from the EU statistics office on February 01, 2023.
As a result of Europe’s concerted effort to rebuild natural gas reserves and a relatively mild winter, natural gas prices have dropped by over 80% and now have returned to the levels before the war started.
Figures released by the European Union’s statistics agency showed the currency- area’s economy grew at an annualized rate of 0.5% as higher energy costs weighed on household spending. This evolved 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., according to Wall Street Journal.
More broadly, some investors have been encouraged by Europe’s improved economic indicators over the past year. GDP. From late September till February, European market benchmark STOXX 600 has risen by 20 percentage points more than S&P 500 — the largest outperformance seen in four months in the past 30 years.
Mathews at Capital Economics noted to CNN that the “steady outperformance” of European stocks can be dated back to a decline in European wholesale gas prices from their all-time high reached in late August. Europe’s benchmark gas contract is now trading at about €53.75 per megawatt hour, sharply down from the peak of €346 per megawatt hour in September 2022.
However, analysts believe Europe is not out of the woods yet. Though inflation has started to cool, its annual rate is still at a new record high – 9,9%, according to Eurostat, which could keep interest rates elevated for some time. High-interest rates make it more expensive for companies to borrow to expand their business, raising doubts about their future earnings.