“We have difficult months ahead of us,” said EU Economic Commissioner Paolo Gentiloni. “The potential for further economic disruption from the Russian war is far from exhausted.” According to the current status, it is expected that “the EU, the euro area and most member states will slide into recession in the last quarter of the year,” the commission said.
In July, the authority had forecast growth of 1.4 percent for the coming year. She now referred to the general economic uncertainty, high energy prices and the loss of purchasing power in private households, the “more restrictive financing conditions” due to high interest rates and the likewise weakening global economy. They raised their inflation expectations for the coming year from four to 6.1 percent.
For Germany, the correction of the July growth forecast for the coming year was particularly pronounced. At that time, Brussels was still expecting a GDP increase of 1.4 percent. The Commission points to a delayed recovery from the Corona crisis in the German economy. Production in Germany returned to pre-pandemic levels later than in many other member states.
Within the EU, Brussels only expects a downturn in Sweden (also -0.6 percent) and Latvia (-0.3 percent). Outside the EU, Great Britain has to expect a drop in economic output of 0.9 percent in the coming year.
For the current year, however, the Commission has raised its expectations for the EU: “The strong momentum of 2021 and the strong growth in the first half of the year should allow real GDP growth in the EU to increase to 3.3 percent overall in 2022. ” In July, the authority had still assumed an increase in GDP of 2.7 percent. Recently, several member states had surprised with stable growth figures.
As far as inflation is concerned, according to Commission experts, the peak is still to come and should be reached towards the end of the year. For the current year, the Commission has therefore revised the inflation forecast upwards from 7.6 percent to 8.5 percent.
Despite gloomy growth prospects and high inflation, the Commission does not expect any dramatic consequences for the labor market: “It is expected that the labor markets will react to the slowdown in economic activity with a delay, but will remain resilient.” Employment is currently at an all-time high, while unemployment is at an all-time low.
