The Russian invasion of Ukraine and the resulting rise in energy and commodity prices will slash economic growth in the euro zone this year and next, while pushing inflation to record levels, the European Commission forecast on Monday. European Comission.
The Commission cut its growth forecast this year for the 19 countries sharing the euro from an estimated 4.0% in February, shortly before the war in Ukraine began, to 2.7%. Growth will slow to 2.3% next yearalso below the 2.7% previously forecast.
The forecast is the first comprehensive estimate of the economic cost of the war in Ukraine for the 19 countries that share the euro and the 27 EU countries.
“The prospects for the EU economy before the outbreak of war were for a long and robust expansion. But the Russian invasion of Ukraine has posed new challenges, just as the Union had recovered from the economic shocks of the pandemic,” the Commission said.
“By putting new upward pressures on commodity prices, causing further supply disruptions and increasing uncertainty, the war is exacerbating pre-existing headwinds to growth, which were previously expected to ease,” it added.
Inflation
Moscow is calling its invasion a “special military operation” to rid Ukraine of fascists, a claim kyiv and its Western allies say is a baseless pretext for an unprovoked war.
The Commission said the European economy would be hit even harder if Russia cut off gas supplies to the EU, estimating that doing so would cut forecast growth by 2.5 percentage points in 2022 and one percentage point in 2023. That would trigger a recession. , according to the report.
Inflation, which the European Central Bank wants to keep at 2.0%, will be 6.1% this year, according to Commission forecasts, and will only drop to 2.7% next year. Before the war, the Commission expected prices to grow 3.5% in 2022 and 1.7% in 2023.
The scenario of an abrupt gas supply cutoff by Russia would boost inflation by a further 3 percentage points this year and a further 1 percentage point in 2023, according to the Commission.
“Uncertainty around the outlook has clearly increased and risks have been tilted to the downside and are mainly related to the duration of the war,” EU Economy Commissioner Paolo Gentiloni told a news conference.
Despite public spending to cushion rising energy prices and support millions of refugees arriving from Ukraine, the EU’s overall public deficit should fall to 3.6% of GDP in 2022, from 4.7% in 2021, as temporary Covid-19 support measures are withdrawn. According to the European Commission, it should drop to 2.5% in 2023.
In the euro area, the aggregate deficit will be cut in half, to 3.7% this year compared to 2021, and will continue to fall to 2.5% next year, while the aggregate public debt of the euro area will be reduced. from 97.4% of GDP in 2021 to 94.7%, and will continue to drop to 92.7% in 2023.
Furthermore, despite the slowdown in growth, unemployment in the euro zone will continue to fall to 7.3% of the active population this year and to 7.0% in 2023, compared to 7.7% in 2021.