Commerzbank’s Senior Economist Dr. Vincent Stamer argues that the Oil-driven inflation rise will weigh on Euro area GDP this year, trimming growth by more than 0.1 percentage points. A sustained move in Oil to 100 USD would have a significantly stronger impact, though models suggest some growth catch-up once energy costs retreat next year.

Higher energy costs curb near term GDP

"The rise in inflation is also likely to slow economic growth in the euro area. For many people, an increase in gasoline and diesel prices is likely to be a burden and increase uncertainty. As a result, consumers would spend less money on goods and services produced in Europe. Costs would also rise for businesses."

"Both factors would harm the domestic economy, meaning that economic growth this year is likely to be more than 0.1 percentage points lower. If the price of oil continues to rise to $100, the effect would be significantly stronger."

"For the coming year, however, our quantitative models predict a catch-up effect once the costs of oil and gasoline have fallen again. Adjustment effects such as a shift to less energy-intensive goods and services are also likely to play a role."

"However, this estimate of the effect is subject to a high degree of uncertainty."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)