EU Anticipates a Recession This Year As Inflation Remains High

The 19 nations that use the euro currency will enter a recession over the winter as peak inflation persists longer than anticipated and high fuel and heating costs reduce consumer purchasing power.

FREMONT, CAThe executive committee of the European Union slashed its forecast for economic growth in the coming year, predicting that the 19 nations that use the euro will enter a winter recession as peak inflation persists longer than anticipated and high fuel and heating costs reduce consumer purchasing power.

In its autumn projection, the European Commission foresees declining economic output in the final three months of this year and the first three months of 2023. The EU, the euro area, and most member states are projected to slip into recession in the last quarter of the year, according to the commission, due to high energy prices, a rising standard of living, higher interest rates, and decreasing global commerce.

The growth prediction for the remainder of 2023 was decreased from 1.4 per cent projected in the last forecast from July to 0.3 per cent. According to the European commissioner for the economy, the EU economy is at a turning moment. Reporters in Brussels said that after an unexpectedly strong first half of the year, the EU economy lost pace in the third quarter, and recent survey data point to a downturn for the winter. The outlook for next year has drastically deteriorated.

Germany, the biggest economy in Europe and one of the most dependent on Russian natural gas before the crisis in Ukraine, is predicted to have the worst performance the following year. Over the next year, a 0.6 per cent output decline was anticipated in Germany.

As a result of Russia's reduction in gas supplies to Europe, which is utilised for heating, electricity, and industrial activities, natural gas and energy prices have skyrocketed. Government-owned gas supplier Gazprom has cited technical considerations and certain customers' refusal to pay for gas in rubles, despite accusations from European officials that Russia is engaging in energy warfare to punish EU nations for supporting Ukraine.

In response, EU nations have set up new supplies of natural gas by pipeline from Norway and Azerbaijan as well as in a liquefied form that arrives by ship from the US and Qatar. They have also offered cash assistance to consumers facing increased bills.

Although there is now enough gas in storage, a particularly harsh winter plus the loss of any remaining Russian gas may easily cause a gas shortage to last until the winter of 2023–2024.

Electricity costs are skyrocketing for consumers and businesses, which has caused some industries to simply stop producing energy-intensive goods like steel and fertiliser that aren't profitable.

According to the EU prediction, inflation will peak later than anticipated, close to the end of the year, and increase the average rate in the eurozone to 8.5 per cent for 2022 and to 6.1 per cent for 2023. This represents an improved revision of roughly one per cent for 2022 and more than two per cent for 2023.

One traditional definition of a recession is two consecutive quarters of declining output. At the same time, the economists on the eurozone business cycle timing committee utilise a wider range of information, such as employment data.

The commission predicted an increase in the unemployment rate from 6.8 per cent this year to 7.2 per cent next and a fall to seven per cent in 2024, indicating that the job market was likely to hold up reasonably well despite declining output over the winter.