The EU makes a surprise forecast about the Russian economy after the war in Ukraine

EU Russia’s economic forecast is stable

Russia’s real GDP is expected to shrink 10.4% this year after recording 4.7% growth in 2021, according to the latest outlook issued by the European Commission (EC), the governing body of Russia. EU announced.

Russian export earnings are expected to rise on the back of high prices and strong commodity demand. “This will allow the government to support rublevulnerable groups and the economy, limiting the reduction in real GDP to 10.4% by 2022,” the EC report states.

The European Commission predicts that the Russian economy will soon stabilize again in 2023, when the country is expected to adjust to the new reality. At the same time, Russia’s GDP growth is forecasted not to be positive again, reaching 1.5%, because import substitution industrialization is underway after foreign businesses leave the Russian market. effective enough.

The report forecasts inflation will exceed 20% this year due to supply bottlenecks and rising import prices. Forecast, in 2023, inflation in Russia will decrease by 10% as purchasing power decreases and consumption patterns change.

Russia’s exports of goods and services will fall 16.1% this year, with 2023 exports expected to grow slightly by 3.9%. Imports are expected to decline by 25.8% in 2022 and will increase by 5.4% next year.

Private investment is expected to decline by more than 20% by 2022 due to very low demand for new investment in the current environment as foreign companies withdraw from the Russian market.

The small budget deficit is projected to be 0.5% of GDP in 2022 to 1.5% of GDP in 2023, as falling commodity prices and Russia’s limited ability to export goods have reduced resources. collect.

Lower the bloc’s growth forecast

The EU’s GDP will grow by 2.7% this year and 2.3% in 2023, the bloc’s executive arm said on May 16 – one of the bloc’s first economic projections since Russia launched the war. translated in Ukraine 24.02.

The European Commission’s previous outlook projected the bloc to grow 4% this year and 2.8% in 2023. The EU economy grew 5.4% last year after a deep recession caused by spurred by the COVID-19 pandemic.

The Russia-Ukraine hostilities have posed new challenges as the EU recovers from the economic impacts of the pandemic, the commission said. “War is aggravating previous obstacles to growth,” the forecast noted.

ABC News pointed out, currently, energy becomes a key issue for the EU when the bloc implements sanctions Russia At the same time, efforts must still be made to ensure that the members of the bloc do not fall into recession. Rising energy prices are leading to record inflation, making everything from food to transportation and housing more expensive.

Russia is the EU’s top supplier of oil, gas and coal, accounting for about a quarter of the bloc’s total energy. EU energy imports from Russia last year totaled $103 billion, or 62% of the bloc’s purchases of Russian goods.

The EU’s ban on coal from Russia will start in August and a voluntary effort is underway to reduce demand for Russian gas by two-thirds this year. An embargo on Russian oil is being proposed but is facing obstacles from some landlocked members that are heavily dependent on Russian oil, including Hungary.

All these factors drive the EU to work to secure an alternative energy supply in the coming months, both from fossil fuel exporters such as the US and from domestic renewable sources to help the EU. achieve longer-term climate goals.

The latest economic forecasts also paint a bleak inflation picture due to rising energy prices. EU-wide inflation is now projected at 6.8% this year and 3.2% in 2023 – much higher than previous projections of 3.9% and 1.9% respectively.

European Economic Commissioner Paolo Gentiloni warned: “Our forecast is highly uncertain and risky. Other scenarios are possible, whereby growth could be lower and inflation higher than we anticipate.”

In the months leading up to the war in Ukraine, the worldwide energy crisis sent inflation in Europe to record highs. This trend accelerated during the conflict, with inflation in the 19 eurozone countries hitting 7.5% in April.

This sets the stage for the European Central Bank to end years of loose monetary policy in the coming months – including record low interest rates – to help boost economic activity.

On May 16, Mr. Gentiloni will not rule out the possibility EU fall into an inflationary stagnation – a combination of a sluggish economy and rising inflation – though such a risk is still far away.