The European Commission revealed this Friday, November 11 its revision of economic forecasts for the euro zone, for the end of the year 2022 and for the year 2023. It is revising its previous estimates significantly upwards, while Europe is suffering the consequences of the war in Ukraine. It “is one of the most affected advanced economies, due to its geographical proximity to the war zone and its heavy dependence on gas imports from Russia”, underlines Commission in a press release. As a result, “expected numbers for 2023 are significantly lower on growth, and higher on inflation.”
For the end of 2022, Brussels expects inflation to be stronger than expected, at 8.5% against 7.6% previously expected. And this, in particular because of soaring energy prices linked to the war in Ukraine. Inflation should thus reach its peak at the end of the year, estimates the Commission in the press release. If Brussels predicts that it will then decline in 2023, it is still recalculating euro zone inflation upwards for next year as well. This should reach 6.1%, against 4% expected so far.
In parallel, “the EU, the euro zone and most member countries should plunge into recession in the last quarter of this year”, predicts the Brussels executive. That is, in a phase of negative GDP growth. “We have difficult months ahead of us,” acknowledged the European Commissioner for the Economy, Paolo Gentiloni, who predicts a contraction in activity in the last quarter of this year and the first of 2023.
“The shock of the war is taking over, he notes. The sharp erosion of purchasing power has caused a drop in consumer confidence, like that of companies which are faced with high production costs, persistent supply difficulties and tighter financing conditions”.
The return to growth is expected in the spring. But the Commission has also revised down its GDP growth for 2023 to just 0.3% for countries sharing the single currency, against 1.4% expected so far.
“The uncertainty remains exceptionally high” due to the unpredictable evolution of the war, however warned the European Commissioner for the Economy Paolo Gentiloni. If Europe fails to prepare properly, the economic damage could be even greater than expected. In a pessimistic scenario, GDP could thus fall by 0.9% in 2023 according to the Commission, and inflation will prove to be much more persistent.
