The European Commission has raised its inflation forecasts for the eurozone significantly and has slashed its 2023 growth forecast for the bloc as Russia’s conflict towards Ukraine takes its toll on the financial system.
Following the revision, the European Commission expects eurozone inflation at 7.6% in 2022, up from its earlier forecast of 6.1% revealed in May. Annual common inflation is projected to peak at historic highs in 2022, based on the Commission’s forecasts. For 2023, eurozone inflation is forecast at 4.0%, up from 2.7% within the Spring forecasts.
“Moscow’s actions are disrupting energy and grain supplies, pushing up prices and weakening confidence,” European Commissioner for Economy Paolo Gentiloni stated.
Russia’s invasion of Ukraine has put extra upward pressures on power and meals costs, that are feeding into world inflationary pressures, eroding the buying energy of households and triggering a quicker financial coverage response than beforehand assumed, the European Commission stated.
“In view of high inflation and tightening financing conditions, it will be important to find the right balance between moving towards a more prudent fiscal stance and protecting the most vulnerable,” EU Executive Vice-President Valdis Dombrovskis stated.
The eurozone financial system stays significantly weak to developments in power markets attributable to its excessive reliance on Russian fossil fuels, the European Commission stated.
Mr. Dombrovskis is urging the EU to scale back its dependence on Russian fossil fuels. “Russia’s war against Ukraine continues to cast a long shadow over Europe and our economy,” he stated.
Economic exercise within the the rest of the 12 months is predicted to be subdued, however a promising summer season tourism season, the European Commission forecasts. Quarterly financial growth is predicted to collect momentum in 2023 on the again of a resilient labor market, moderating inflation, assist from the Recovery and Resilience Facility and a considerable amount of extra financial savings.
Gross home product within the 19-member eurozone is projected to develop 2.6% in 2022, the EU stated in its quarterly report. It beforehand forecast 2.7% growth for the 12 months in May. The financial system is predicted to broaden 1.4% in 2023, weaker than the two.3% beforehand anticipated.
“With the course of the war and the reliability of gas supplies unknown, this forecast is subject to high uncertainty and downside risks,” Mr. Gentiloni warned.
Fresh will increase in gasoline costs may additional drive up inflation and stifle growth, the European Commission stated.
Write to Maria Martinez at maria.martinez@wsj.com
