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EU cuts eurozone growth forecast as inflation ‘chills’ economy

BRUSSELS(AFP) – The eurozone economy will grow less than expected this year, the European Commission said yesterday, as energy prices and supply chain problems jack up inflation and delay a more sustained recovery from the pandemic.

The European Union (EU) executive said gross domestic product (GDP) in the single currency bloc would grow by four per cent this year, instead of the 4.3 per cent forecast only three months ago.

Inflation would increase to a much stronger than expected 3.5 per cent in 2022.

“Multiple headwinds have chilled Europe’s economy this winter: the swift spread of Omicron, a further rise in inflation driven by soaring energy prices and persistent supply-chain disruptions,” said EU Economy Commissioner Paolo Gentiloni.

The high prices “are likely to remain strong until the summer, after which inflation is projected to decline as growth in energy prices moderates and supply bottlenecks ease”, he added.

However, the former Italian prime minister underlined that “uncertainty and risks remain high” with the EU warning that “geopolitical tensions” in eastern Europe had “markedly aggravated” potential threats to the economy.

This was in reference to the more than 100,000 Russian troops that are deployed on the border with Ukraine, raising Western fears of a possible attack.

The crisis has brought major uncertainty over the supply of energy from Russia, which accounts for roughly 40 per cent of the gas that heats homes and powers factories in the 27-member EU.

“Apparently Russia has no interest in increasing supplies right now, despite peak prices,” European Commission President Ursula von der Leyen said in a video address to a business conference in Brussels.

Energy prices and food chain problems jack up inflation and delay a more sustained recovery from the pandemic, says the European Commission. PHOTO: AFP