EU sees growth forecasts cut on high energy prices

Market: Agriculture, Coal, Crude oil, Electricity, LPG, Metals, Natural gas, Oil products, Petrochemicals
11/07/22

The European Commission is likely this week to cut its economic growth forecasts for this year and 2023, with the effects of high energy prices being felt throughout the fiscal system, the bloc's trade commissioner said today.

Speaking ahead of a meeting of finance ministers, Valdis Dombrovskis said that although growth has been "quite resilient" in 2022, "high energy prices are trickling down to the rest of the economy, and inflation is getting more entrenched and more widespread."

He said there is likely to be "some downward revision" to 2022 growth forecasts "and even more so for next year" when the commission updates its financial estimates later this week. In its prior forecasts, made in May, it saw 2022 gross domestic product (GDP) growth in the EU and in the euro area at 2.7pc, down from its projection for 4.0pc growth made in early February before Russia's invasion of Ukraine sent energy prices soaring. For 2023 the commission in May forecast GDP growth at 2.3pc.

At the time the commission warned these would be overestimates if Russia completely cuts off gas supply. Dombrovskis today said this is not the base case for ministers' current thinking, but "it's not a risk we can exclude".

"[The] main driver of inflation is high energy prices, primarily high fossil fuel prices," he said. "But we see also others like high food prices, continued supply chain disruption. [This] requires a sectoral response and strengthening our energy supplies and security, diversifying away from Russia, accelerating roll-out of renewables."

A growth downgrade from the commission would put it in line with the World Bank, which revised down its forecast for 2022 global GDP growth by 1.2 percentage points to 2.9pc a month ago, and the OECD. The IMF updates its forecasts later this month and has flagged that its 3.6pc growth figure for global GDP in 2022 will come down.

Asked if the mooted price cap on Russian oil would be under discussion this week, Dombrovskis said the finance ministers' meeting was not the venue for this to be decided, but it "is one of the options we are looking at".

By Ben Winkley

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