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EU to slash growth forecast again

BRUSSELS (AFP) – The European Commission on Monday said it will again cut its growth forecast for this year and hike its expectations for inflation, but it signalled it saw no sign yet of recession in Europe.

“What we see is that economic growth is proving quite resilient this year. Still, one can expect some downward revision and even more so for the next year because of many uncertainties and risks,” European Union (EU) Executive Vice President Valdis Dombrovskis told reporters in Brussels.

The commission, the EU’s executive arm, in May cut expectations for growth in the EU to 2.7 per cent in 2022 and 2.3 per cent in 2023, down from a forecast of four per cent and 2.8 per cent just months earlier.

Inflation in the eurozone last month beat a new record, hitting 8.6 per cent in defiance of hopes that the surge in consumer prices would begin to cool even as the war in Ukraine still rages.

This was still far higher than the current forecast by the commission, which in May projected inflation in the eurozone at 6.1 per cent for 2022 and 2.7 per cent in 2023. “What we are seeing is that these continued high energy prices are trickling down to the rest of the economy and inflation is getting more entrenched and more widespread,” Dombrovskis warned.

To reverse the trend, the European Central Bank will on July 21 increase interest rates for the first time in 11 years despite worries in some corners that this could spark an economic contraction.

European Central Bank President Christine Lagarde talks with Commissioner for Trade of the European Union Valdis Dombrovskis. PHOTO: AP