By Hans Bentzien
FRANKFURT (Dow Jones) — The EU Commission has lowered its growth forecasts for the euro area and raised its inflation forecasts because of the Russian war against Ukraine. As stated in its spring forecast, in the basic scenario it expects gross domestic product to grow by 2.7 percent in 2022 (winter forecast: 4.0 percent) and by 2.3 (2.7) percent in 2023. At the same time, an increase in consumer prices of 6.1 (3.5) and 2.7 (1.7) percent is expected. “The world economy and that of the EU are being hit above all by the high prices for energy raw materials,” writes the Commission.
War-related disruptions in logistics and supply chains, as well as rising input costs for a wide range of commodities, are adding to the global trade disruptions caused by the drastic Covid-19 containment measures in parts of China.
The Commission emphasizes that its forecasts are subject to considerable uncertainties and that a great deal depends on the further course of the Ukraine war. However, she is confident that growth will be supported by the end of the anti-corona measures, the support measures taken during the pandemic, the still improving labor markets, the shedding of excess savings and the financing program Next Generation EU.
However, the EU Commission has also calculated a risk scenario that provides for an embargo on Russian gas. According to this, growth in 2022 and 2023 would be 2.5 and 1 percentage points lower than in the baseline scenario and inflation would be 3 and 1 percentage points higher.
In the base scenario, the Commission believes that Germany is capable of growth rates of 1.6 (3.6) and 2.4 (2.6) percent. She sees growth in France at 3.1 (3.6) and 1.8 (2.1) percent and in Italy at 2.4 (4.1) and 1.9 (2.3) percent.
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(END) Dow Jones Newswires
May 16, 2022 05:01 ET (09:01 GMT)