“Conflicting signals” and concerns “over the ongoing war in Ukraine”. It is against this backdrop that EU Commissioner for Economy Paolo Gentiloni presented the Spring Economic Forecast at the Berlaymont Palace, the headquarters of the European Commission. GDP growth is 1.3 percentage points lower than projected in the Winter Forecast. This is “one of the steepest downgrades”, according to Gentiloni, with inflation that “is expected to hit an all-time high”.
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“The war has clearly exacerbated the headwinds”, he explained. There is, however, a “strong and improving labour market”, at least this year, although it may slow down as a result of the ongoing military operations and their impact on the economy and trade. “Government deficits and debt ratios are forecast to decline this year”, while uncertainty has increased and “risks have tilted to the downside and are predominantly related to the duration of the war”.
“Private consumption and investment are set to continue growing”. In detail: real GDP growth in both the EU and the euro area is now expected at 2.7% in 2022 and 2.3% in 2023, down from 4.0% and 2.8% (2.7% in the euro area), respectively, in the Winter 2022 Interim Forecast.
In March 2020, European countries were suddenly overwhelmed by the COVID-19 pandemic, originating from China. The unprecedented nature of this crisis may explain why most national governments, together with leaders of the EU institutions, responded to this emergency with delays as well as inconsistency. Nevertheless, it was quickly understood that the challenge was to tame a health care, economic and social crisis simultaneously. The search for appropriate tools and strategies began.
Once it was clear that in order to slow down the epidemic, much of the economic and social activities had to stop, the risk of rapidly rising unemployment became apparent. The EU was expected not only to mobilise existing instruments, but also to quickly develop new ones. On 2 April 2020, the European Commission (2020) duly put forward a proposal for the creation of a European instrument for temporary Support to mitigate Unemployment Risks in an Emergency (SURE). This bold and innovative move must be welcome, but the actual profile of this new instrument requires clarification to avoid misunderstandings, false expectations and eventual disappointment.
The war in Ukraine and the lockdowns in China are slowing growth in the European Union and fueling a strong surge in prices. Just a few months ago, economists were fearing a new wave of Covid-19. But it was the war in Ukraine, which started on 24 February, that turned their forecasts upside down.
The public deficit is expected to be 3.6% of GDP in the European Union in 2022, and 2.5% in 2023!!!
On Monday, May 16, the European Commission presented its new projections, which outline a much less optimistic scenario. From now on, it is expecting an increase in gross domestic product (GDP) of 2.7% in 2022 and 2.3% in 2023 in the European Union (EU) as well as the euro zone. In February, in its latest forecast, it had anticipated growth of 4% in 2022 and 2.8% (2.7% for the eurozone) the following year.
The EU-27 continue to reap the benefits of the post-Covid recovery and the 750-billion-eruo European recovery plan. But the situation has changed dramatically compared to the winter of 2021. On November 11, Paolo Gentiloni, the commissioner for economic affairs, described the expected situation for the European economy as "extraordinary," adding that such a situation "will not happen again soon, perhaps never for [his] generation" and urging the Union's member states to take advantage of it to reform. Russia's aggression, beyond the havoc it is wreaking in Ukraine, has dashed his hopes.
