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The war has caused energy and food prices to rise, it will also lead to lower annual growth and record inflation, according to the bloc’s economic forecasts.
The European Commission cut its forecasts for economic growth in the euro zone for this year and next, while raising its inflation expectations, largely due to the impact of the war in Ukraine.
Brussels showed its quarterly forecasts and confirmed its most pessimistic perspectives, which it had already discussed on Monday with the economy ministers of the euro zone. The Community Executive now forecasts growth of 2.6% this year for the 19-country monetary bloc, slightly lower than the 2.7% it had forecast in May.
For 2023, the year in which the impact of the war in Ukraine and the rise in energy prices may be even more noticeable, growth of 1.4% is estimated, instead of the 2.3% previously estimated.
“A storm is possible, but we are not there at the moment,” said Paolo Gentiloni, EU Commissioner for the Economy, noting that the euro’s fall to parity with the dollar was a major concern, especially for economies developing, rather than for the euro zone.
Suppressed growth forecasts and estimates for rising inflation
The European Union of 27 countries, maintains the growth forecast of 2.7% for this year, but it was revised down to 1.5% in 2023 from 2.3%. The Commission also raised its estimates for euro zone inflation, which is now expected to peak at 7.6% this year before falling to 4.0% in 2023.
For Brussels, headline inflation could rise further if gas prices soar due to a possible Russian supply disruption, which could lead to a further downward revision of growth.
The Commission does not rule out risks to the outlook with a resurgence of the Covid-19 pandemic. The Community Executive stressed that the euro zone was not expected to enter a recession and that the forecasts could improve if oil and raw materials remain low.
Germany, the largest economy in the EU, will slow its growth to 1.4% this year and 1.3% in 2023. The Commission had forecast expansions of 1.6% and 2.4% respectively in May. France would grow 2.4% this year, instead of the 3.1% previously forecast. Next year, growth is expected to slow further, to 1.4%, compared to the 1.8% expected in May.
Asked about the risk of the Italian government collapsing, Gentiloni said political stability in Italy is especially important now.
with Reuters
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