PostedMay 16, 2022, 3:13 p.m.
The European Commission on Monday revised its forecast for 2022: in the euro zone, GDP is expected to increase by only 2.7%, while inflation will be stronger than expected by 3.5 points.
European Economics Commissioner Paolo Gentiloni warned on Monday that growth forecasts for the year are not yet negative, but could become so if Russia stops gas deliveries to Europe.
AFP
The war in Ukraine and the impact of sanctions against Russia prompted the European Commission to drastically cut its growth forecasts for the European economy on Monday, due in particular to higher than expected inflation. Brussels lowered its Gross Domestic Product (GDP) growth forecast for the eurozone in 2022 by 1.3 points to 2.7% and increased its inflation forecast by 3.5 points to 6.1%. , compared to the last figures announced on February 10 before the start of the Russian offensive.
The shock is particularly harsh. This is “one of the largest drops in forecasts” from the European Commission, said European Commissioner for the Economy, Paolo Gentiloni, during a press conference. These figures are still subject to “high uncertainty” linked to the evolution of the conflict. For the moment, growth over the whole year “is not expected to be in negative territory”. But “it is a possibility” if Russia abruptly stops its deliveries of Russian gas to Europe, he warned.
The peak of inflation has not yet been reached
The war in Ukraine reinforced the headwinds that existed before the start of the conflict, but which should have dissipated during the year. These are in particular increases in the prices of raw materials which, beyond energy, are spreading to the prices of food and certain industrial products and services. The conflict has also increased supply chain problems and increased uncertainty for both businesses and households.
Inflation in the euro zone has hit a new record every month since November, reducing household purchasing power. Its peak is expected during the second quarter and it should then “very gradually decrease” over the rest of the year, then more markedly next year, according to Paolo Gentiloni. However, he acknowledged that possible wage increases could continue to fuel consumer price inflation, especially as the labor market remains solid. The unemployment rate is at its lowest in Europe and Brussels expects it to drop further to 6.7% this year and 6.5% in 2023 in the EU.
Ups and downs over the past two years
The economy has been on a rollercoaster ride over the past two years. After being hit in 2020 by the effects of the Covid pandemic, activity rebounded strongly from the spring of 2021. The result was record growth of 5.4% recorded last year in the euro zone, after a recession record (GDP down 6.4%) the previous year.
In 2022, France (+3.1%) should do twice as well as Germany (+1.6%), penalized both by its dependence on Russian fossil fuels and the weight of its industry, particularly automotive, more affected by supply disruptions. The European Commission globally foresees an improvement in the public accounts. In 2020, massive aid plans for the economy had propelled the deficit to 7.1% of GDP in the euro zone. Brussels expects 3.7% this year and 2.5% in 2023.
(AFP)