European Commission revises economic outlook downward due to rising energy prices and war-related disruptions.

The European Commission has significantly downgraded its growth projections for the EU, cutting the forecast from 4% to 2.7% for 2022. The revision follows the escalation of the Russia-Ukraine conflict, which has caused a sharp increase in energy prices and inflation, undermining expectations of a robust economic recovery post-Covid-19. The ongoing war has led to soaring energy costs, which in turn have exacerbated inflation and economic pressures.

If Russian gas supplies were to be fully cut off, the Commission estimates that growth could fall by an additional 2.5 percentage points, effectively bringing the economy to a near halt. Inflation in the euro area is now expected to average 6.1% in 2022, up from the previous forecast of 3.5%. The broader EU’s inflation rate is projected at 6.8%. A complete halt to Russian gas supplies would push inflation closer to 10%.