The war in Ukraine continues to weigh down the European Union’s economy and household wallets. The Commission will further lower its forecasts for economic growth on the continent for this year and next year, while raising those for inflation, European Commission Vice-President Valdis Dombrovskis warned on Monday. The latter specified that these forecasts had been adapted to take into account the consequences of the conflict in Ukraine and the repercussions which continue to be felt on the economic ground.
“Economic growth has been resilient this year. Despite everything, we can expect a downward revision, and even more for next year, ”declared Valdis Dombrovskis, before a meeting of finance ministers in Brussels. “And unfortunately inflation continues to be higher than expected. So it will again be revised upwards, ”he added. The inflation rate in the euro zone broke a new record in June, reaching 8.6% over one year.
The war in Ukraine had already prompted the Commission to drastically reduce its growth forecasts, due in particular to the surge in energy prices. On May 16, it had lowered its forecast for growth of Gross Domestic Product (GDP) for the euro zone in 2022 by 1.3 points, to 2.7%, and increased its forecast for inflation by 3.5 points, to 6.1%, compared to previous figures which had been published before the outbreak of the Russian offensive.
The fear of a complete Russian gas cut
Brussels now fears a complete cut in gas supplies to Russia in response to Western sanctions imposed on Moscow. A complete cessation of these deliveries, on which Europe is very dependent, “is not our base scenario, but it is not a risk that we can exclude. Clearly, we are preparing at EU level and also at Member State level,” explained Valdis Dombrovskis.
A sudden stop in Russian gas deliveries could lead to restrictions for households and businesses, with possible consequences for industrial production. “We had already factored this adverse scenario into our spring forecast, and it was leading us to negative growth. Unfortunately, things have not changed,” declared the Commissioner for the Economy, Paolo Gentiloni.
Today “we are not in this scenario, but the risk of entering it increases”, he acknowledged. “For the moment, the situation is one of very slow growth, we are not in negative territory. What could be a game-changer are real shortages” in the gas supply, he explained.