The outlook for the EU economy before the outbreak of the war in Ukraine was a long and steady expansion.

Russia's invasion of Ukraine has created new challenges just as the EU recovers from the economic consequences of the pandemic, according to an assessment presented today by the European Commission. 

By exerting further pressure to raise commodity prices, causing new supply disruptions and increasing uncertainty, the war exacerbated pre-existing obstacles to economic growth.

This is why the EC is reviewing the growth prospects of the EU economy, forecasting a downturn as well as rising inflation.

EU GDP is expected to remain positive, thanks to the reopening of the economy and strong political action to support growth during the pandemic.

The return of services requiring close contact, a strong and improving labor market, lower savings and fiscal measures to address rising energy prices must support private consumption, the commission said.

Real GDP growth in the EU and the euro area is expected to be 2.7 percent this year and 2.3 percent next year, down from 4 percent and 2.8 percent, respectively (2.7 percent in the eurozone). ) in the interim forecast for winter 2022.

The decline in 2022 must be seen against the background of the momentum for growth gained by the economy in the spring and summer of last year.

This adds about two percent to this year's annual growth rate.

The growth of production during the year decreased from 2.1 to 0.8 percent.

The main blow to the global and EU economies comes from energy prices.

Although they had risen significantly before the war, from low levels during the pandemic, uncertainty for supply chains increased, while increasing their instability.

This applies to food and other basic goods and services, as the purchasing power of households decreases, the assessment said.

War-induced supply chain disruptions, as well as rising raw material costs, are contributing to disruptions in world trade caused by drastic anti-epidemic measures still in place in parts of China.

Inflation has been accelerating since the beginning of 2021 and from 4.6 percent on an annual basis in the last quarter of 2021, it rose to 6.1 percent in the first quarter of 2022. Core inflation in the euro area rose to 7, 5 percent in April - the highest share in the history of the monetary union.

Inflation in the eurozone is expected to be 6.1 percent in 2022, before falling to 2.7 percent next year.

For 2022, this is a significant increase compared to the interim forecast for the winter of 2022 (3.5 percent).

Inflation is expected to reach 6.9 percent in the second quarter of this year and then gradually decline.

For the EU, inflation is expected to rise from 2.9 percent in 2021, to 6.8 percent in 2022, and fall to 3.2 percent next year.

Average core inflation is projected to be above three percent this year and next in the EU and the eurozone.

Too weak a euro would make it harder to fight inflation

The labor market is entering a new crisis.

In 2021, more than 5.2 million jobs were created in the EU economy, which attracted an additional 3.5 million people to the labor market.

The number of unemployed decreased by nearly 1.8 million people.

The unemployment rate at the end of 2021 fell below previous record lows.

Labor market conditions are expected to improve further.

Employment in the EU is projected to grow by 1.2 per cent this year, although this annual growth rate has been boosted by strong momentum in the second half of last year.

People fleeing the war in Ukraine to the EU are expected to enter the labor market gradually, and the effects will not be felt until next year, according to the EC.

Unemployment is projected to fall further to 6.7 percent this year and 6.5 percent next year in the EU, and to 7.3 percent and seven percent this year and next, respectively, in the eurozone.

Despite spending on measures to mitigate the impact of high energy prices and to support people fleeing Ukraine, the general government deficit in the EU is expected to narrow further this year and next, as temporary measures to support the economy affected by pandemic, there are cancellations.

From 4.7 percent of GDP in 2021, the deficit in the EU is expected to fall to 3.6 percent of GDP this year and 2.5 percent next year (3.7% and 2.5% in the euro area) .

After declining in 2021 to around 90% (97% in the euro area) of the historic peak of almost 92% of GDP in 2020 (almost 100% in the euro area), the overall debt-to-GDP ratio is projected to fall to around 87% in 2022 and 85% in 2023 (95% and 93% in the euro area, respectively), remaining above pre-pandemic levels, the report said.

Threats to economic forecasting and inflation are highly dependent on the development of the war and especially on its impact on energy markets.

Due to the high uncertainty, the baseline forecast is accompanied by a scenario analysis that encourages the impact of higher energy prices, as well as a sharp decline in gas supplies from Russia.

In the latter, more severe scenario, GDP growth rates would be about 2.5 and 1 percent below the forecast baseline level this year and next, respectively, while inflation will increase by 3 percent this year and more than one percent. percentage next year.

In addition to such possible disruptions in energy supply, growing supply chain problems and further rising prices of non-energy goods, especially food, may put additional pressure to reduce growth and increase prices.

Strong inflationary pressures are accompanied by an increased threat to funding conditions, the commission said.

It is also reported that the threat of covid has not disappeared.

The assessment notes that the Russian invasion of Ukraine leads to the economic separation of the EU from Russia, which in turn has unpredictable consequences.

European Commission

economy