Amidst high inflation and a slowdown of economic activity, the Executive Commission of the European Union said on Friday that 19 out of 27 member states will slide into an economic recession. Inflation is continuing to stay at higher levels in the majority of EU economies signaling tougher interest rate policy by the European central bank.
European Commission also cut the growth forecast for 2023 to 0.3 percent from the 1.4 percent forecast in July.
Despite the fall in oil prices in the international market, prices of fuel continue to stay high in European Union due to supply issues. As the winter is approaching, heating homes will also become a costly affair which will force the common populace to cut back on other expenses. A lesser purchasing power will result in a slump in economic activity and a recession in the end.
Two consecutive quarters of falling output is one common definition of recession, although the economists on the eurozone business cycle dating committee use a broader set of data including employment figures.
Inflation will peak later than expected, near the end of the year, and will lift the average rate to 8.5% for 2022 and to 6.1% for 2023 in the eurozone. That is an upward revision of nearly 1 percentage point for 2022 and more than 2 points for 2023.
The commission also predicted that economic output will fall severely in the final three months of 2022 and the first few months of 2023. Higher energy prices, high prices for essential commodities, and higher borrowing costs are expected to push European economies into a slowdown. The commission predicts a recession in major European economies by the final quarter of the year.
Germany, which has the largest economy in the European Union is going to be worst hit with a recession and economic slowdown as supply issues with gas and oil had pushed its economy into a severe crisis. Before the beginning of the Russian special military operation in Ukraine, Germany used to purchase gas and oil in large amounts from Russia. As European Union and western powers decide to slap sanctions on Russia following the country’s intervention in Ukraine, Russia decided to cut oil and gas supplies to EU countries.
This severely impacted the supply-demand balance which resulted in prices skyrocketing in the European economies. Germany was hit with the most as winter was approaching, and gas prices were going up at a time when demand was at a higher level. Higher fuel prices pushed up prices of other essential commodities.
