Russia's war of aggression against Ukraine continues to negatively affect the EU economy, setting it on a path of lower growth and higher inflation compared to the Spring Forecast.
The Summer 2022 (interim) Economic Forecast
projects that the EU economy will grow by 2.7% in 2022 and 1.5% in
2023. Growth in the euro area is expected at 2.6% in 2022, moderating to
1.4% in 2023. Annual average inflation is projected to peak at
historical highs in 2022, at 7.6% in the euro area and 8.3% in the EU,
before easing in 2023 to 4.0% and 4.6%, respectively.
Shocks unleashed by the war take a toll on growth
Many of the negative risks surrounding the Spring 2022 Forecast have
materialised. Russia's invasion of Ukraine has put additional upward
pressures on energy and food commodity prices. These are feeding global
inflationary pressures, eroding the purchasing power of households and
triggering a faster monetary policy response than previously assumed.
Ongoing deceleration of growth in the US is adding to the negative
economic impact of China's strict zero-COVID policy.
The EU economy remains particularly vulnerable to developments in
energy markets due to its high reliance on Russian fossil fuels, and
weakening global growth detracts from external demand. Momentum gathered
with the rebound of last year and a somewhat stronger than previously
estimated first quarter is set to prop up the annual growth rate for
2022. Still, economic activity in the remainder of the year is expected
to be subdued, notwithstanding a promising summer tourism season. In
2023, quarterly economic growth is expected to gather momentum, on the
back of a resilient labour market, moderating inflation, support from
the Recovery and Resilience Facility and the still large amount of
excess savings.
Overall, the EU economy is set to continue expanding, but at a
significantly slower pace than expected in the Spring 2022 Forecast.
Record high inflation expected to ease in 2023
Headline inflation until June has hit record highs as energy and food
prices continued growing and price pressures broadened to services and
other goods. In the euro area, inflation grew strongly in the second
quarter of 2022, from 7.4% in March (y-o-y) to a new all-time high of
8.6% in June. In the EU, the increase was even more pronounced, with
inflation jumping a full percentage point, from 7.8% in March to 8.8% in
May.
The forecast for inflation has been revised considerably upwards
compared to the Spring Forecast. Besides the strong price increase in
the second quarter, a further surge in European gas prices is set to
pass through to consumers also via electricity prices. Inflation is
projected to peak at 8.4% y-o-y in the third quarter of 2022 in the euro
area and from there decline steadily and fall below 3% in the last
quarter of 2023, in both the euro area and the EU, as the pressures from
supply constraints and commodity prices fade....
Commissioner Gentiloni
more at Commission
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