Tag: EU

Winter 2022 Economic Forecasts The Winter 2022 Economic Forecast indicates that, after a notable expansion of 5.3% in 2021, the EU economy will grow by 4.0% in 2022 and 2.8% in 2023. Growth is also expected in the euro area to stand at 4.0% in 2022 and moderate to 2.7% in 2023. The EU as a whole reached its pre-pandemic level of GDP in the third quarter of 2021 and all Member States are expected to have passed that milestone by the end of 2022. Economic growth will gain momentum Following a vigorous rebound in economic activity that began in the spring of last year and continued into early autumn, the pace of growth in the EU is estimated to have slowed to 0.4% in the last quarter of 2021, from 2.2% in the previous quarter. While a slowdown was already anticipated in the autumn 2021 economic forecast after the EU economy closed the gap to its pre-pandemic level of output in the third quarter of 2021, it was larger than expected, as negative factors for growth intensified, especially the increase in COVID-19 infections, high energy prices and the maintenance of supply shocks. The pandemic continues to weigh on growth as many EU countries are strained by a combination of increased pressure on health systems and staff shortages due to illness, preventive quarantine, or care work. Supply and logistics bottlenecks, including shortages of semiconductors and some metal products, are also expected to continue to weigh on output, at least through the first half of the year. Lastly and just as importantly, energy prices are expected to remain high for longer than anticipated in the autumn forecast, weighing on the economy longer and leading to higher inflationary pressures. This forecast is based on the assumption that the pressure on the economy caused by the current wave of infections will be short-lived. Economic activity is expected to regain momentum, also as supply conditions continue to normalize and inflationary pressures moderate. Short-term turbulence aside, the fundamentals underpinning this expansionary phase remain solid. The continuous improvement of the labor market, high household savings, still favorable financing conditions, and the full application of the Recovery and Resilience Mechanism (RRM) will sustain a prolonged and solid expansionary phase. Upward revision of the inflation outlook Inflation forecasts have been revised upwards considerably compared to those of the autumn. This reflects the effects of higher energy prices, but also the generalization of inflationary pressures on other categories of goods since the autumn. After reaching a record rate of 4.6% in the fourth quarter of last year, inflation in the euro area is expected to peak at 4.8% in the first quarter of 2022 and remain above 3% until the third quarter of the year. As pressures from supply constraints and high energy prices fade, inflation is expected to ease to 2.1% in the final quarter of the year, before falling below the 2-year target. % of the European Central Bank throughout 2023. Overall, inflation in the euro area is forecast to rise from 2.6% in 2021 (2.9% in the EU) to 3.5% (3.9% in the EU) in 2022, before falling to 1.7% (1.9% EU) in 2023. Uncertainty and risks remain high Although the effect of the pandemic on economic activity has diminished over time, ongoing containment measures and prolonged staffing shortages could weigh on economic activity. They could also affect the operation of critical supply chains for longer than anticipated. In contrast, lower short-term demand growth may help to address supply bottlenecks somewhat earlier than expected. Inflation may turn out to be higher than expected if cost pressures eventually spill over from producer prices to consumer prices to a greater extent than expected, thus aggravating the risk of spillovers. Risks to growth and inflation prospects are considerably aggravated by geopolitical tensions in Eastern Europe. Paolo Gentiloni, Commissioner for the Economy, stressed that "multiple negative factors have worsened the European economy this winter: the rapid spread of the omicron variant, a new rise in inflation driven by rising energy prices, and the persistence of disruptions in the supply chain. Those factors are expected to gradually fade, with growth accelerating again as early as this spring. Price pressures are likely to remain strong through the summer, after which inflation is expected to ease as energy price growth moderates and supply bottlenecks are reduced. However, uncertainty and risks remain high.

Tag: EU

Winter 2022 Economic Forecast: Growth Expected to Gain Momentum After Winter Slowdown

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