The EU economy entered the new year on a weaker note than expected. After returning to pre-pandemic production levels last summer, a moderate slowdown was already forecast in the fall forecast. However, since then the headwinds to growth have intensified. After a slump, economic expansion is expected to pick up pace in the second quarter of this year and remain robust over the forecast horizon. After a strong recovery of 5.3% in 2021, the EU economy is now expected to grow by 4.0% in 2022, as in the euro area, and by 2.8% in 2023 (2.7% in the euro zone).
The resurgence of the pandemic last fall and the exponential spread of the new Omicron variant have led to new strains on healthcare systems and an unprecedented increase in work absences in many EU countries. EU governments have reinstated restrictions, although generally of a softer or more targeted nature than in previous waves. Ongoing logistical and supply bottlenecks, including shortages of semiconductors and some metal products, continue to weigh on production, as do high energy prices. Stronger than expected inflationary pressures are weighing on household purchasing power.
This forecast assumes that the impact on the economy caused by the current wave of infections will be short-lived and that most supply bottlenecks will ease within the year. Finally, inflationary pressures should ease towards the end of the year. Beyond these short-term turbulences, a continuously improving labor market, large accumulated savings, still favorable financing conditions and the full deployment of the Recovery and Resilience Facility (RRF) are all set to support a prolonged and robust expansion phase.
Compared to the autumn forecast, inflation projections have been revised upwards, as energy prices are now expected to remain high for longer and price pressures extend to several categories of goods and services. Eurozone inflation is expected to peak in the first quarter of 2022 and remain above 3% until the third quarter of the year. As pressures from supply constraints and energy prices ease, inflation is expected to ease significantly in the last quarter of the year and stand at below 2% next year. Overall, inflation in the euro area is expected to rise from 2.6% in 2021 (2.9% in the EU) to 3.5% (3.9% in the EU) in 2022, before falling back to 1.7% (1.9% in the EU) in 2023. The balance of risks to the growth outlook are broadly equal. The current wave of infections could have a longer-lasting economic impact than expected, leading to further disruptions in essential supply chains. On the upside, household consumption could grow more strongly, as seen following previous waves, while RRF-enhanced investment could generate a stronger boost to activity. Inflation projections are subject to upside risks if cost pressures are passed through to a greater extent from producer prices to consumer prices, increasing the likelihood of significant second-round effects . Risks to the outlook for growth and inflation are compounded by geopolitical tensions in Eastern Europe.
Forecasts by country
European economic forecasts. Winter 2022
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Box 1.1: Production bottlenecks through the prism of the Commission’s business surveys
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Box 1.2: Update on energy price developments: pass-through from wholesale to retail trade
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Box 1.3 Business leaders are optimistic about investment this year
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Press release of February 10, 2022
Presentation of winter 2022 forecasts
Winter 2022 Economic Forecast Infographic
Press conference by Commissioner Paolo GENTILONI on the winter 2022 economic forecasts