EU cuts growth forecast as energy prices ‘chill’ economy – EURACTIV.com

0

The EU’s economy will grow less than expected this year, the European Commission said on Thursday, as energy prices and supply chain problems raise inflation and delay a stronger recovery from the pandemic .

After strong growth of 5.3% in 2021, the European Commission has said EU and eurozone GDP will grow by 4.0% this year, down from the 4.3% predicted just ago. three months.

Inflation would rise to a higher than expected level of 3.5% in 2022.

“Multiple headwinds have chilled the European economy this winter: the rapid spread of Omicron, a further rise in inflation driven by soaring energy prices and ongoing supply chain disruptions,” said EU Economics Commissioner Paolo Gentiloni.

High prices ‘are likely to stay high until the summer, after which inflation is expected to ease as energy price growth moderates and supply bottlenecks ease’ , he added.

However, the former Italian prime minister stressed that ‘uncertainty and risks remain high’, with the EU warning that ‘geopolitical tensions’ in Eastern Europe had ‘significantly heightened’ potential threats to the economy .

This referred to the more than 100,000 Russian troops deployed on the border with Ukraine, raising fears in the West of a possible attack.

The crisis has brought major uncertainty to Russia’s energy supply, which accounts for around 40% of the gas that heats homes and powers factories in the EU27.

“So Vulnerable”

“Apparently, Russia has no interest in increasing its supplies at the moment, despite the price spikes,” European Commission President Ursula von der Leyen said in a video address at a conference. business in Brussels.

“It is our dependence on (gas) imports that makes us so vulnerable to price increases,” she said.

The commission predicted that a return to economic normality would come in 2023, with eurozone inflation falling to 1.7% – below the European Central Bank‘s 2% target.

Growth in the euro zone would be 2.7%, a robust figure compared to trends before the coronavirus pandemic.

The ECB is under heavy pressure on inflation, with growing calls for reduced monetary stimulus and a zero interest rate policy.

The pace of price rises in the bloc unexpectedly hit 5.1% in January, the highest since currency club records began in 1997.

The debate deepened last week when the EU reported record high unemployment for the euro zone, fueling belief that consumer demand could rise, putting further pressure on prices.

ECB chief Christine Lagarde told a European Parliament committee this week that “there is no need to rush to a premature conclusion at this stage.”

The euro zone economy “is not showing the same signs of overheating that can be seen in other major economies”, she said, referring to the United States and Great Britain. Brittany where the central bankers have decided to tighten monetary policy sharply.

Tighter monetary policy and higher interest rates would put significant pressure on more indebted European countries, such as Italy, Greece, Spain and France, by increasing the cost of financing their spending.

Already, spreads between Italian and German government bonds have started to widen, with markets forcing the Italian government to pay higher prices for newly issued debt than the German government.

Share.

About Author

Comments are closed.