The European Commission on Monday said it will again cut its growth forecast for this year and hike its expectations for inflation, but it signalled it saw no sign yet of recession in Europe.
“What we see is that economic growth is proving quite resilient this year. Still, one can expect some downward revision and even more so for the next year because of many uncertainties and risks,” EU executive vice president Valdis Dombrovskis told reporters in Brussels.
He was giving a sneak preview of the commission’s most up-to-date forecasts for the EU’s 27 member states that are due on Thursday.
The commission, the EU’s executive arm, in May already sharply cut expectations for growth in the EU to 2.7 percent in 2022 and 2.3 percent in 2023, down from a forecast of 4.0 percent and 2.8 percent just months earlier.
This followed the International Monetary Fund that also warned that the war in Ukraine will weigh heavily upon economic growth in Europe.
Inflation in the eurozone last month beat a new record, hitting 8.6 percent in defiance of hopes that the surge in consumer prices would begin to cool even as the war in Ukraine still rages.
This was still far higher than the current forecast by the commission, which in May projected inflation in the eurozone at 6.1 percent for 2022 and 2.7 percent in 2023.
“What we are seeing is that these continued high energy prices are trickling down to the rest of the economy and inflation is getting more entrenched and more widespread,” Dombrovskis warned.
To reverse the trend, the European Central Bank will on July 21 increase interest rates for the first time in 11 years despite worries in some corners that this could spark an economic contraction.
But EU economics affairs commissioner Paolo Gentiloni said that “for the time being” Brussels expected “very limited, reduced and slowed-down growth”.
“We are not in negative territory at the moment,” he said.