EU growth and inflation outlook worsens as energy crisis hits

Brussels further downgraded its growth forecast and raised its inflation outlook as the energy crisis triggered by Russia’s invasion of Ukraine took a toll on the EU economy.

Both the EU and the euro zone will expand by 2.7% this year, well below the Previous Forecasts released by the European Commission on Monday put the forecast at 4%. Growth is projected at 2.3% in 2023.

Inflation in both the European Union and the euro zone is expected to soar above 6% this year, and prices in some Central and Eastern European countries could see double-digit gains in 2022.

“The Russian invasion of Ukraine is causing untold pain and damage, but also weighing on Europe’s economic recovery,” Economic Commissioner Paolo Gentiloni said in a statement on Monday.

“The war has caused energy prices to spike and further disrupt supply chains, so inflation will now stay elevated for longer,” he added.

After the invasion of Ukraine, energy costs soared and confidence was shaken. The commissioner also warned that “growth may be lower than what we forecast today, and inflation may be higher than what we forecast today” is also possible.

According to the committee’s projections, one of those scenarios — Russia’s outright cuts in gas supplies — would reduce economic growth by 2.5 percentage points to just 0.2 percent. Growth forecasts for 2023 will also be cut by a percentage point. Inflation will be 3 percentage points higher than the baseline forecast in 2022 and 1 percentage point higher in 2023.

EU member states have passed five rounds of sanctions and are now seeking to finalize A package for the oil sectorHowever, these measures have not yet been agreed, given resistance from EU member states that are heavily dependent on Russian oil, notably Hungary.

Energy prices up 38% year-on-year in April euro area, food costs fell by more than 6% over the same period.separate commission report Posted on Monday Multiple shocks, from supply chain hurdles to higher commodity prices, could further hit households’ purchasing power in the coming months, the warning said.

By 2023, inflation will fall to 2.7%. But the figure is still above the ECB’s 2% target.Last week, ECB President Christine Lagarde transmit signal Said she would support raising key interest rates in July, paving the way for the first rate hike in more than a decade.

With growing threats to growth, some economists hope the European Commission will announce another suspension of its deficit and debt rules next year.

Despite the grim outlook, the committee expects the unemployment rate to continue falling after the Covid-19-induced surge. According to draft forecasts, unemployment in the euro zone will fall from 7.7% last year to 7.3% in 2022, before slipping further to 7% in 2023.

The budget balance is also expected to gradually improve. The overall budget gap in the euro area is expected to fall from 5.1% of GDP last year to 3.7% this year and 2.5% in 2023.

Source link