The European Union must cut this week its forecast for economic growth this year and next and also raise the expectation of inflation, in a scenario that highlights the magnitude of the impact of the war in Ukraine.
The announcement was made on Monday by the Executive Vice President of the European Commission, Valdis Dombrovskis. The European executive will present this week its economic perspectives for the European bloc, and Dombrovskis left little room for optimism.
“Growth is showing to be quite resilient this year. But we can expect a downward revision because there are many uncertainties and risks. And unfortunately inflation continues to surprise with its increase. So once again it will be revised higher,” he said.
The Commission had dramatically cut in May its expectation of growth of the Gross Domestic Product this year, to 2.7%, removing 1.3 percentage points. Simultaneously, raised the inflation expectation by 3.5 percentage points, up 6.1% this year.
The European statistics agency Eurostat calculated, however, that inflation in the euro zone in June smashed all the records of his historical series and reached 8.6% year-on-year, capping a trend that has set off all the alarms since the end of last year.
The European bloc had known the first warnings already in the last quarter of last year about the increase in energy prices. But this situation became a priority with the beginning of Russia’s military actions in Ukrainewhich have a devastating impact on European access to oil and gas in Russianabundant and at highly competitive prices.
warning lights
The bloc’s economy had begun a timid recovery in the second half of 2021 after the relaxation of rigid health regulations as a result of the coronavirus pandemic. However, the sharp rise in energy prices and the drastic reduction in access to Russian gas expose the bloc to the explosive mix of very low economic growth and high inflation.
The European Commissioner for Economy, Paolo Gentiloni, indicated this Monday that for the moment the situation is very slow growing, although they are not in negative territory. “What could be a game changer is the actual shortage of gas supply,” he noted.
The European Union adopted severe sanctions against Russia for the war in Ukraine, including a progressive embargo on imported oil from that country, which should be completed by the end of this year.
So far, however, the European bloc has yet to take a similar measure against Russia’s natural gas, a critical fuel for operation of an important part of European industry.
In response to the sanctions, Russia began to reduce its gas deliveries to EU countries, in a dramatic scenario for the bloc, which in a race against time seeks an alternative source of that fuel. The reduction in Russian gas deliveries has already raised fears of possible restrictions in the supply to homes and businesses, with an unpredictable impact on industrial production.
