Eurozone: The forecasts of international organizations for growth and inflation

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The European Commission’s spring forecasts maintained the positive growth sign for the Eurozone this year and 2023, but at a level significantly lower than the winter forecasts of February 10, two weeks before the Russian invasion of Ukraine.

Under the baseline scenario, GDP in the region is projected to grow by 2.7% this year and 2.3% next year, up from a 4% and 2.8% increase, respectively, as forecast in the winter forecast. These forecasts are similar to those presented by the International Monetary Fund in its April report (2.8% and 2.3% for this year and 2023, respectively), but lower than those of the European Central Bank (3.7 % for this year). The latter are, however, outdated as they took place in March and the focus is on the new forecasts that the ECB will present in June.

In terms of inflation, the Commission forecast for inflation almost doubled to 6.1% for the average levels of 2022 from 3.5% in February, while for 2023 it is projected to decrease to 2.7%. The IMF forecast inflation of 5.3% and 2.3% for this year and next year, respectively.

There is therefore no doubt that the impact of the war, mainly due to rising energy and food prices which is reducing consumer purchasing power and declining confidence, is significant.

The impact becomes clearer if two more factors are taken into account. Firstly, the Commission has drawn up two more scenarios due to the very high level of uncertainty, one unfavorable in the event of a further increase in energy prices and one very negative if the supply of gas from Russia is cut off. If there is a problem in supplying Europe with Russian gas, it is essentially forecasting marginally positive growth (0.2%) this year and that inflation will increase to 9%.

Second, the annual growth rate for 2022 is largely due to the so-called carry over, ie the strong GDP growth in the second half of 2021. Carry over is estimated at 2 percentage points, while net growth in 2022 is expected at just 0 , 8% from 2.1% forecast in February.

The positive factors that support growth this year are the full opening of economies after the lifting of coronavirus restrictions, the strong labor market situation, the high level of household savings during the pandemic and the implementation of projects who have joined the Recovery Fund.

However, the monetary and fiscal policies that together contributed the most to the recovery of the economies from the pandemic crisis, will not have the same contribution this time. This is especially true of monetary policy as the expected abolition of bond markets by the ECB and the gradual increase in interest rates from July, aimed at gradually reducing inflation, will remove liquidity from the economy. Fiscal policy, too, will by no means have the expansionary character that it had in 2020-2021 as the prevailing view is that the reduction of deficits and debt that had significantly increased in the last two years should continue. The Commission predicts that the overall budget deficit in the Eurozone will be reduced in 2023 to 2.5% of GDP from 4.7% this year and debt to 180.4% from 185.7%, respectively.

For Greece, the growth forecasts are more favorable than those of the Eurozone. The Commission forecasts GDP growth of 3.5% for this year and 3.1% for 2023, while inflation based on the harmonized price index of Eurostat is expected to be slightly higher than the Eurozone this year, at 6.3% versus 6.1%. , but lower in 2023 (1.9% vs. 2.7%).

The report notes that growth will remain robust, despite the impact of the war in Ukraine, as it predicts the recovery of tourism to pre-coronary levels by 2023, and will contribute positively to the development and implementation of the national recovery plan.


Source: Capital

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