The Ukrainian conflict has forced the European Commission to slash its annual growth expectation for both the European Union (EU) and eurozone this year.
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Real GDP growth in both the EU and the eurozone is now expected at 2.7 percent in 2022 and 2.3 percent in 2023, down from its February forecast of 4.0 percent in 2022 and 2.8 percent (2.7 percent in the eurozone) in 2023.
The EU Spring 2022 Economic Forecast also increased its inflation forecast to 6.1 percent in the eurozone in 2022 as steep increases in prices across the board continue to grow. Inflation for the whole of the EU is expected to reach 6.8 percent this year.
European Commissioner for Economy Paolo Gentiloni described the cut in projected growth as "one of the steepest" ever done due to higher commodity prices, including energy, which have increased further since the Russia-Ukraine conflict broke out in February.
"Both private consumption and investment are expected to be negatively affected by high inflation, uncertainty and aggravated supply bottlenecks. At the same time, consumption should continue benefitting from the post-pandemic reopening momentum, a buoyant labor market, lower accumulation of savings and fiscal measures to offset rising energy," Gentiloni said.
He pointed out that inflation has been picking up momentum since early 2021. In the eurozone, it rose to 7.5 percent in April, "the highest rate in the history of our monetary union."
Gentiloni warned that this forecast is however subject to high uncertainty and risks that are closely linked to the development of the conflict. "Other scenarios are possible under which growth may be lower and inflation higher than we are projecting today," he cautioned.