![]() This compares with 3.5% and 1.7%, respectively, in the WiF. In the euro area, inflation is projected at 6.1% in 2022 and 2.7% in 2023. In the EU, HICP inflation is now expected to average an all-time high of 6.8% in 2022, before declining to 3.2% in 2023. In turn, the projection for inflation has been revised up significantly. These revised growth projections imply slower convergence to the output level that the economy would have attained in the absence of the pandemic shock – based on an extrapolation of the growth outlook from the last forecast preceding the pandemic. Output growth within the year has been reduced from 2.1% to just 0.8%. The downgrade for 2022 must be read against the background of the growth momentum gathered by the economy in spring and summer last year, which adds around 2 percentage points to the annual growth rate for this year (see Box I.2.1.). Real GDP growth in both the EU and the euro area is now expected at 2.7% in 2022 and 2.3% in 2023, down from 4.0% and 2.8% (2.7% in the euro area), respectively, in the Winter 2022 interim forecast (WiF). The outlook in the EU is now for lower growth and higher inflation, especially for 2022. However, the EU economy remains indirectly exposed to pandemic developments in other regions. The forecast rests on the assumption that COVID-19 will not pose significant disruptions to economic activity in the EU over the forecast horizon. Furthermore, while COVID-19 has significantly relaxed its grip on the EU economy, this is not the case in other parts of the world and risks of a resurgence of serious cases cannot be ruled out. In particular, it is assumed that geopolitical tensions do not normalise before the end of the forecast horizon. They concern the duration and intensity of the geopolitical tensions, as well as the size, distribution, labour market integration and budgetary impact of the inflows of people fleeing the war in Ukraine. The ad-hoc assumptions underpinning the forecast are summarised in Box I.1.1. Large inflows of people fleeing the war – as many as 5 million in the first 10 weeks since the start of the war – pose a further organisational and coordination challenge for the EU.Īgainst extreme uncertainty around the unfolding of the geopolitical situation, this forecast is underpinned by strong working assumptions. The EU is first in line among advanced economies to take a hit, due to its geographical proximity to Russia and Ukraine, heavy reliance on imported fossil fuels, especially from Russia, and high integration in global value chains. ![]() The war has changed the picture, by bringing renewed disruptions in global supply, fuelling further commodity price pressures and heightening uncertainty. Economic activity would continue to be supported by an improving labour market, large accumulated savings, favourable financing conditions and the deployment of the Recovery and Resilience Facility (RRF). ![]() The pandemic situation was improving, while most of the headwinds posed by logistic and supply bottlenecks and pressures on the price of energy and other commodities were expected to fade in the course of this year. Almost two years after the start of the pandemic, Russia’s war against Ukraine poses new challenges to the EU economy.ĭespite entering the year on a weak note, the outlook for the EU economy before the outbreak of the war was for a prolonged and robust expansionary phase. ![]()
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