HomeEuropeEU hikes inflation forecast to 8.3% as Ukraine war drives soaring prices

EU hikes inflation forecast to 8.3% as Ukraine war drives soaring prices

The European economy is not seen entering a recession this year, according to the European Commission, but some economists have a different opinion.

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Inflation will hit 7.6% in the euro zone and 8.3% in Europe this year, according to revised forecasts, as Russia’s invasion of Ukraine puts a dampener on the region’s economies.

Thursday’s forecasts from the European Commission, the executive arm of the EU, come as markets monitor inflation prints closely. In the U.S., the consumer price index rose 9.1% on the year in June, according to numbers released Wednesday — coming in much higher than economists had expected.

Concerns over record-high price rises are also widespread in Europe, where the latest reading showed that inflation hit a record rate of 8.6% in the euro zone in June.

The situation is piling pressure both on 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.

Back in May, the European Commission said it expected inflation in the euro area to hit 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, the inflation forecasts have been revised up 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, pushing up prices and weakening confidence,” Paolo Gentiloni, Europe’s economics commissioner, said in a statement.

“Record-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 gas supplies unknown, this forecast is subject to high uncertainty and downside risks,” he added.

European officials fear a complete shutdown in gas supplies from Russia. Though the bloc has gradually been reducing its purchases of Russian gas, these imports still represent an important source of energy for the bloc — most notably for sectors which use gas as a raw material, such as the chemicals sector.

Pipeline operator Nord Stream AG confirmed earlier this week that maintenance work at its Nord Stream 1 is underway until July 21. The pipeline is crucial in the transportation of Russian gas to Germany and beyond, however there are concerns that flows will not return to normal levels after the works are concluded.

Lower growth expectations



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