EU Commission revises Belgian growth forecast downwards due to war in Ukraine

The war in Ukraine is weighing on the European economy. In its new economic forecasts, the European Commission now expects the eurozone economy to grow by 2.7% in 2022, whereas in February a growth of 4% was predicted. Belgium's GDP will increase by 2% this year, according to the Commission. At the beginning of the year, it predicted a growth of 2.2% for our country.

Before the Russian invasion of Ukraine, the Commission assumed a robust recovery of the economy after two long corona years. But since 24 February, the eurozone, and by extension the whole European Union, has been facing new challenges. The war has put further pressure on consumer prices, disrupted supply chains and dented overall economic confidence. It is no surprise that energy prices have the biggest impact. But increased prices of food and other basic goods and services have also affected purchasing power.

Because of all this, the Commission has to revise its growth forecasts downwards. In 2022, the eurozone economy is expected to grow by 2.7%, whereas in February the Commission was still expecting growth of 4.0%. In the entire European Union, the economy is expected to grow by 2.7% this year.

The Belgian economic growth is slowing down. From a predicted increase of 2.2% in February to 2.0 % today. Belgium is therefore below the average of the euro zone. Of the neighbouring countries, the Netherlands (+3.3%) and France (+3.1%) have the best forecasts, while in Germany (+1.6%) the engine is almost at a standstill. Luxembourg is in the middle (+2.2%).

In 2023, the Belgian economy is expected to grow by 1.8%, according to the Commission. For both the eurozone and the EU as a whole, it expects growth of 2.3%. But that growth could come under further pressure, says the analysis in the Berlaymont building. There are the immediate risks of further disruptions to energy supplies, additional problems in supply chains and rocketing prices. Moreover, it is difficult to predict the precise impact of the economic unbundling of the European Union and Russia. The Commission is taking account of the threat of stagflation.

Inflation is reaching record levels. In April, prices in the euro area rose by an average of 7.5% compared with April 2021, the highest level since the formation of monetary union 30 years ago. For the whole of 2022, the Commission expects prices to rise by 6.1%. This is a significant revision: in February, an inflation rate of 3.5% was still forecast. The Commission thinks that price increases will reach their highest level (+6.9%) in the current second quarter. In 2023, inflation would drop to 2.7%.

The average inflation rate in Belgium will be 7.8% in 2022 - and will fall to 1.9% in 2023. This year, only the Baltic States and Slovakia have recorded sharper price increases. Core inflation in Belgium is estimated at 3.8% this year.

(TOM)

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