The Ukraine war and the associated energy crisis are weighing on the European economy. This has a massive impact on consumer prices: the EU Commission is forecasting a peak in the inflation rate for this year.
In view of the high energy prices, the EU Commission expects inflation in the euro area to reach an all-time high this year. On average for the year, inflation is expected to reach 7.6 percent, according to the Brussels authorities’ summer economic forecast. In the case of Germany, the Commission even expects a value of 7.9 percent.
In its spring forecast in May, the Commission still assumed 6.1 percent inflation for the euro countries. EU Economic and Monetary Affairs Commissioner Paolo Gentiloni sees the consequences of the war at the gates of the EU as a driver of development: “Russia’s baseless invasion of Ukraine is continuing to send shock waves through the global economy.” This would upset energy and grain supplies. As a result, prices rose and confidence suffered, the Italian emphasized.
In its summer forecast for this year, the Brussels authorities expect gross domestic product (GDP) in the euro area to grow by just 2.6 percent. In the spring she had estimated 2.7 percent. In 2023, only a meager plus of 1.4 percent should come out – instead of the previously expected 2.3 percent. The Commission lowered its forecast for economic growth in Germany for this year to 1.4 from 1.6 percent. For 2023, they expect an increase of 1.3 (spring forecast 2.4) percent.
In Europe, the ramp-up of the economy after the coronavirus pandemic boosted growth. But despite a promising start to the holiday season in summer, economic activity is only expected to be subdued in the second half of the year.
At the same time, record inflation is expected to peak this year and gradually ease in 2023. According to the EU Commission, it is to be expected that the European Central Bank (ECB) will again miss its target of 2.0 percent in 2023 with an expected inflation rate of 4.0 percent (spring forecast: 2.7 percent).
