Spring Forecast Downgrades Economy for 2022

In its Spring 2022 Economic Forecast, the European Commission has significantly downgraded its growth forecast for GDP, or gross domestic product:

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. 

Most of the revised growth rate is expected to be spillover effects from the post-pandemic reopening of the economy in 2021. The Spring Forecast estimates about 0.8 percentage points’ worth of GDP growth to be intrinsic to 2022. 

While the forecast for inflation-adjusted growth has been downgraded, predictions of inflation remain elevated. A preliminary estimate suggests that euro-zone inflation reached 7.5% in April. Despite this, according to the Spring Forecast, inflation in the currency area “is projected at 6.1% in 2022, before falling to 2.7% in 2023.” 

In the Winter 2022 Economic Forecast, the all-year rate for 2022 was predicted at 3.5%.

The Commission’s Spring Forecast does not explain what factors are expected to slow down inflation later in the year. However, it does point to the risks that result from the war in Ukraine. One of the factors taken into account is a complete shutdown of Russian supply of natural gas to Europe. The Forecast defines this as a “more severe” scenario:

GDP growth rates would be around 2.5 and 1 percentage points below the forecast baseline in 2022 and 2023, respectively, while inflation would increase by 3 percentage points in 2022 and by more than 1 in 2023, above the baseline projection.