The U.S. and European Economies Are Diverging

livemint.com:

The gap between the U.S. and European economies is widening, with growth and inflation on different trajectories as the fallout from the war in Ukraine weighs on Europe’s prospects. The European Union’s statistics agency Tuesday said the combined gross domestic product of the eurozone’s 20 members fell by an annualized 0.4% in the three months through September, having increased by 0.6% in the previous quarter.

This is a stark contrast with the 4.9% rate of annualized growth recorded by the U.S. during the same period, more than double the pace of growth in the previous quarter. Added to this are signs that consumer-price inflation is easing in Europe’s single currency area while it has increased recently in the U.S.

Figures also released by Eurostat showed prices were 2.9% higher in October than a year earlier, the lowest rate of inflation since July 2021. The core rate of inflation, which excludes energy and food prices, fell to 4.2% from 4.5% in September. Economic growth in the eurozone has lagged behind the U.S.

since the global financial crisis that struck in 2008, and that gap has widened since the onset of the Covid-19 pandemic in 2020. This divergence accelerated markedly after Russia’s invasion of Ukraine pushed energy and food prices sharply higher, weakening household spending in the eurozone. As a region that imports most of its energy, Europe has been harder hit by an increase in gas and electricity prices while the U.S., an energy exporter, has benefited to some extent.