BRUSSELS (AFP) – The European Commission yesterday sharply cut its eurozone growth forecast for 2022 to 2.7 per cent, blaming skyrocketing energy prices caused by Russia’s invasion of Ukraine.
The war also spurred the European Union’s (EU) executive to revisit its eurozone inflation prediction for 2022, with consumer prices forecast to jump by 6.1 per cent year-on-year, much higher than the earlier forecast of 3.5 per cent.
“There is no doubt that the EU economy is going through a challenging period due to Russia’s war against Ukraine, and we have downgraded our forecast accordingly,” EU executive vice president Valdis Dombrovskis said.
“The overwhelming negative factor is the surge in energy prices, driving inflation to record highs and putting a strain on European businesses and households,” he added.
The EU warned that the course of the war was highly uncertain and that the risk of stagflation – punishing inflation with little or no growth – remained a real risk going forward.
If Russia, the EU’s main energy supplier, should cut off its oil and gas supply to Europe completely, the commission warned that the forecast would worsen considerably.
“Our forecast is subjected to very high uncertainty and risks,” EU commissioner Paolo Gentiloni told reporters.
“Other scenarios are possible under which growth may be lower and inflation higher than we are projecting today. In any case, our economy is still far from a normal situation,” he said.
For the EU as a whole, including the eight countries that do not use the euro as their currency, the commission had also forecast growth of four per cent in February, but has now cut this to 2.7 per cent, the same level as for the eurozone.
The sharp reduction in expectations is in line with the forecast made in mid-April by the International Monetary Fund, which predicted 2.8 per cent growth for the eurozone this year.
The EU’s warning for the months ahead lands as the European Central Bank is increasingly expected to increase interest rates in July to tackle soaring inflation.
