Storm warning over eurozone as it slashes growth predictions and ramps up inflation forecasts
The EU has warned that a ‘storm is possible’ as the darkening outlook prompted by the war in Ukraine saw it slash its growth predictions and ramp up inflation forecasts.
GDP in the eurozone is expected to grow by 2.6 per cent this year and just 1.4 per cent next year – down from previous estimates of 2.7 per cent and 2.3 per cent respectively – with the economic consequences of the war ‘turning grimmer’.
In contrast, the UK’s GDP is predicted to grow 3.7 per cent this year and 1.2 per cent in 2023, according to the International Monetary Fund.
Pressure: GDP in the eurozone is expected to grow by 2.6% this year and just 1.4% next year – down from previous estimates of 2.7% and 2.3% respectively
The forecast from the European Commission said the EU economy was ‘particularly vulnerable’ to surging energy prices due to its dependence on Russian supplies.
It came a day after IMF chief Kristalina Georgieva said in a blog post that the global outlook ‘has darkened significantly’ as the knock-on impact of the war lifts commodity prices, exacerbating cost of living problems.
She said a report later this month would further downgrade world GDP forecasts. The European Commission report said eurozone growth was expected to have slowed to a standstill in the second quarter.
But it is set to eke out 0.2 per cent growth in the third quarter thanks to a post-pandemic revival in holiday demand.
Inflation in the eurozone is predicted at 7.6 per cent for this year as a whole, up from a previously forecast 6.1 per cent, before falling to 4 per cent next year.
The commission warned that inflation could soar even further if Russia chokes off gas supplies.
But it is not forecasting a recession. EU economics commissioner Paolo Gentiloni said: ‘A storm is possible, but we are not there at the moment.’
EC vice president Valdis Dombrovskis said: ‘We are facing challenges on multiple fronts from rising energy and food prices to a highly uncertain global outlook.’
Draghi’s exit stuns EU
Italian prime minister Mario Draghi quit after the coalition he leads fell apart
Italian prime minister Mario Draghi’s resignation added to the turmoil in the eurozone last night.
Draghi, 74, a former European Central Bank chief, offered to quit after the coalition he leads fell apart.
It could mean national elections as early as September.
Draghi – premier for 17 months – was once dubbed ‘Super Mario’ after his pledge to do ‘whatever it takes’ to save the euro during the continent’s debt crisis a decade