In the new quarterly forecasts, Brussels confirmed a more downbeat outlook, now predicting a slower growth than it previously assessed.
The EU executive now predicts growth of 2.6 percent this year for the 19-country currency bloc, slightly less than the 2.7 percent it had forecast in May. Going into next year, when the impact of the Ukraine war and of higher energy prices may be felt even more acutely, growth is now forecast to be 1.4 percent, instead of the 2.3 percent previously estimated.
For the wider 27-country European Union, the growth forecast was unchanged at 2.7 percent this year, but revised down to 1.5 percent in 2023 from 2.3 percent.
In a major change, the Commission also raised its estimates for euro zone inflation, which this year is now expected to peak at 7.6 percent before falling to 4.0 percent in 2023. In May, the Commission had forecast prices in the euro zone would rise 6.1 percent this year and 2.7 percent in 2023.
Brussels warned headline inflation could move even higher if gas prices soared due to Russia cutting off supplies, which might lead to a further downward revision of growth. In the meantime, risks to the outlook from a resurgence of the COVID-19 pandemic could also not be ruled out.
Despite these high risks, the Commission underlined that the euro zone was not expected to tip into a recession and the forecasts could also improve if recent declines of oil and commodity prices continued.
Thanks to a strong labour market with historically low unemployment rates, the Commission said private consumption could also prove more resilient to increasing prices if households were to use more of their accumulated savings.
Germany, the EU’s biggest economy, would see growth slow to 1.4 percent this year and 1.3 percent in 2023. The Commission had in May forecast expansions of respectively 1.6 percent and 2.4 percent.
France is expected to grow by 2.4 percent this year, instead of the previously forecast 3.1 percent. Next year, growth is estimated to slow further to 1.4 percent, against 1.8 percent predicted in May.
Among the three biggest economies of the bloc, Italy is the only one that is expected to grow this year by more than previously forecast. It is now seen to expand by 2.9 percent, rather than the 2.4 percent estimated in May.
However, the country is expected to experience a marked slowdown next year, when growth is predicted at 0.9 percent, less than other large economies and down from a previous forecast of 1.9 percent.