11 November 2022

Commission: Autumn 2022 Economic Forecast: The EU economy at a turning point

The shocks unleashed by Russia's war of aggression against Ukraine are denting global demand and reinforcing global inflationary pressures. The EU is among the most exposed advanced economies,..

After a strong first half of the year, the EU economy has now entered a much more challenging phase. The shocks unleashed by Russia's war of aggression against Ukraine are denting global demand and reinforcing global inflationary pressures. The EU is among the most exposed advanced economies, due to its geographical proximity to the war and heavy reliance on gas imports from Russia. The energy crisis is eroding households' purchasing power and weighing on production. Economic sentiment has fallen markedly. As a result, although growth in 2022 is set to be better than previously forecast, the outlook for 2023 is significantly weaker for growth and higher for inflation compared to the European Commission's Summer interim Forecast.

Growth set to significantly contract at the turn of the year

Real GDP growth in the EU surprised on the upside in the first half of 2022, as consumers vigorously resumed spending, particularly on services, following the easing of COVID-19 containment measures. The expansion continued in the third quarter, though at a considerably weaker pace.

Amid elevated uncertainty, high energy price pressures, erosion of households' purchasing power, a weaker external environment and tighter financing conditions are expected to tip the EU, the euro area and most Member States into recession in the last quarter of the year. Still, the potent momentum from 2021 and strong growth in the first half of the year are set to lift real GDP growth in 2022 as a whole to 3.3% in the EU (3.2% in the euro area) - well above the 2.7% projected in the Summer Interim Forecast.

As inflation keeps cutting into households' disposable incomes, the contraction of economic activity is set to continue in the first quarter of 2023. Growth is expected to return to Europe in spring, as inflation gradually relaxes its grip on the economy. However, with powerful headwinds still holding back demand, economic activity is set to be subdued, with GDP growth reaching 0.3% in 2023 as a whole in both the EU and the euro area.

By 2024, economic growth is forecast to progressively regain traction, averaging 1.6% in the EU and 1.5% in the euro area.

Inflation yet to peak before gradually easing

Higher-than-expected inflation readings throughout the first ten months of 2022 and broadening price pressures are expected to have moved the inflation peak to year-end and to have lifted the yearly inflation rate projection to 9.3% in the EU and 8.5% in the euro area. Inflation is expected to decline in 2023, but to remain high at 7.0% in the EU and 6.1% in the euro area, before moderating in 2024 to 3.0% and 2.6% respectively.

Compared to the Summer Interim Forecast, this represents an upward revision of nearly one percentage point for 2022 and more than two points in 2023. The revisions mostly reflect significantly higher wholesale gas and electricity prices, which exert pressure on retail energy prices as well as on most goods and services in the consumption basket.

Strongest labour market in decades to remain resilient..

The European Commission's Winter 2023 Economic Forecast will update GDP and inflation projections and is expected to be presented in February 2023.

For More Information

Full document: Autumn 2022 Economic Forecast

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