EU cuts 2023 GDP estimate, says on path of lower growth

Market: Biofuels, Chemicals, Coal, Crude oil, Electricity, Fertilizers, Hydrogen, LPG, Metals, Natural gas, Oil products, Petrochemicals
14/07/22

The European Commission today cut its forecast for EU economic growth in 2023, saying the war in Ukraine has put the bloc on a path of lower growth and higher inflation rates.

"The shocks unleashed by the war are hitting the EU economy both directly and indirectly," the commission said. "The rapid increase in energy and food commodity prices is feeding global inflationary pressures, eroding the purchasing power of households and triggering a faster monetary policy response than previously assumed."

It cut its forecast for gross domestic product (GDP) growth in the EU for 2023 to 1.5pc, from its outlook for a 2.3pc expansion made in May. The commission maintained its forecast for 2.7pc GDP growth this year. For the eurozone, the commission now sees growth of 2.6pc this year and 1.4pc in 2023, compared with its prior forecast of 2.7pc and 2.3pc.

The commission said its forecast for this year is propped up by growth rates in the first quarter, which was mostly before Russia invaded Ukraine, and by the prospect of a strong summer tourism season. But it said there are many risks to its outlook to do with how the war develops, as well as slowing growth in the US and China's zero-Covid policy.

Further increases in gas prices could strengthen what it called "the stagflationary forces currently at play," and it warned a sharper tightening of financial conditions would weigh on growth and on financial stability. Although it said a recent drop in oil prices could bring about a deceleration in inflation — front-month Ice Brent crude is today trading around its level before Russia invaded Ukraine — it said "the balance of risks is tilted towards adverse outcomes."

Unlike its forecast in May, the commission today made no mention of a scenario in which Russian gas supply is completely cut off. Earlier this week trade commissioner Valdis Dombrovskis said while this is not the base case for ministers' current thinking, "it's not a risk we can exclude".

EU energy ministers will hold an extraordinary meeting on 26 July to discuss falling Russian gas supplies.

The commission sees inflation at 8.3pc in the EU and 7.6pc in the eurozone this year, with a peak in the current quarter, driven by higher commodity prices and a weaker euro.

The commission joins the World Bank and the OECD in cutting forecasts for growth. The IMF will update its forecasts later this month and has flagged that its 3.6pc growth figure for global GDP in 2022 will come down.

By Ben Winkley

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