(BRUSSELS) — Russia’s war in Ukraine is expected to wreak havoc with the European Union’s economic recovery for the foreseeable future with lower annual growth and record-high inflation, the bloc’s economic forecast showed Thursday.
According to the summer numbers for 19 eurozone countries, inflation will average 7.6% this year. That’s a big increase on its original expectation of 6.1%. The consumer price index jumped 8.6% in the last month from one year before. Expectations for economic growth slid by 0.1 point to 2.6% for the year, a big drop from last year’s expansion of 5.3%.
“Russia’s war against Ukraine continues to cast a long shadow over Europe and our economy,” said EU Vice President Valdis Dombrovskis.
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The conflict has caused a surge in food and energy prices, which are driving an alarming inflation rate. This is affecting economic growth as well as consumer confidence. As European nations scramble for gas to keep warm in the winter, there are growing concerns that Russia could further cut natural gas supplies.
EU admitted that Russian President Vladimir Putin is capable of keeping the European economy out of balance for several months. This makes any future forecast extremely uncertain.
“Risks to the forecast for economic activity and inflation are heavily dependent on the evolution of the war and in particular its implications for gas supply to Europe,” an EU statement said.
Continue reading: Putin Holds The Cards in Global Energy
A second sign of trouble is that the euro and dollar are now almost at par after dropping to their lowest levels in twenty years. This comes largely due to record inflation and higher energy prices.
A recent increase in COVID-19-related cases has created new anxiety.
“The possibility that the resurging pandemic in the EU brings renewed disruptions to the economy cannot be excluded,” the statement said.
Economy Commissioner Paolo Gentiloni said that “with the course of the war and the reliability of gas supplies unknown, this forecast is subject to high uncertainty and downside risks.”
But volatility can also swing the other direction, with the possibility of commodity and energy prices falling at a faster rate than was previously anticipated.
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