Europa Press News | Europa Press | Getty Images Inflation will reach 7.6% in the eurozone and 8.3% in Europe this year, according to revised forecasts, as Russia’s invasion of Ukraine puts the region’s economies at risk. Thursday’s forecasts from the European Commission, the EU’s executive arm, come as markets closely monitor inflation. In the US, the consumer price index rose 9.1% year-on-year in June, according to figures released on Wednesday – reaching a much higher level than economists had expected. Concerns about high price rises are also widespread in Europe, where the latest reading showed inflation hit a record 8.6% in the eurozone in June. The situation is putting pressure on both national governments, which are trying to reduce the impact of higher prices on households, and the European Central Bank, which is due to meet next week. In May, the European Commission said it expected inflation in the euro area to reach 6.1% in 2022, before falling to 2.7% in 2023. Now, both forecasts have been revised up to 7.6% and 4%, respectively. For Europe as a whole, inflation forecasts were revised down from 6.8% in 2022 and 3.2% in 2023 to 8.3% and 4.6% respectively. “Moscow’s actions are disrupting energy and grain supplies, raising prices and undermining confidence,” Paolo Gentiloni, Europe’s finance commissioner, said in a statement. “High inflation is now expected to peak later this year and gradually decline in 2023. With the course of the war and the reliability of natural gas supplies unknown, this forecast is subject to high uncertainty and downside risks,” he added. European officials fear a complete cutoff of natural gas supplies from Russia. Although the bloc is gradually reducing its purchases of Russian natural gas, these imports are still an important source of energy for the bloc — especially for sectors that use gas as a feedstock, such as the chemical sector. Pipeline operator Nord Stream AG confirmed earlier this week that maintenance work on Nord Stream 1 is ongoing until July 21. The pipeline is vital for transporting Russian gas to Germany and beyond, yet there are concerns that flows will not return to normal levels after work is completed.
Lower growth expectations
The Commission also revised down most of its growth expectations in its summer economic forecast, released on Thursday.
In May, it said it expected growth of 2.7% this year and 2.3% next year for both the EU and the eurozone.
Now, it now expects Europe’s economy to grow by 1.5% next year, while the eurozone looks set to spend by 2.6% in 2022 and 1.4% in 2023.
Europe has been very hard hit by Russia’s invasion of Ukraine. At the start of the year, some expected the euro zone to grow more than 4% — a faster pace than the United States.
However, harsh sanctions on Russia, declining natural gas flows, major food supply chain issues and a host of other factors have shaken the bloc’s economic outlook.
Many economists are pricing in a recession for the euro zone either later this year or in 2023, but — for now at least — European officials are refusing to talk about the possibility of a recession.
