Higher inflation and oil shortages as a result of sanctions imposed on Russia, along with a much larger-than-expected slowdown in China’s economy, weighed heavily on economic activity in the euro area (EA), GlobalData reported. As a result, the leading data and analytics firm revised down its forecast for real gross domestic product (GDP) growth in EA to 2.9% in September 2022, down from 4.1% in February 2022.
According to GlobalData, “Country Analytics Review”most EA economies are forecast to slow in 2022. Germany is forecast to grow by 1.3% (down from 2.9% in 2021), France by 2.4% (down from 7% in 2021 ), Italy – 3% (6.6% in 2021), Greece – 3.4%. % (8.3% in 2021), Netherlands 2.6% (5% in 2021), Spain 4.1% (5.1%).
China’s economy slows in 2022 following the re-emergence of new variants of COVID-19, along with prolonged lockdowns in parts of the country. This is expected to lead to prolonged economic disruptions as the country’s economy is also vulnerable to risks associated with the global economic outlook. GlobalData forecasts that China’s economy will shrink to 3.2% in 2022, down from 8.1% in 2021.
Pooja Tiwari, Economic Research Analyst at GlobalData, comments: “Since EA is considered the largest exporter of capital goods to China, it will suffer the most – especially Germany. Weakness in China will hit EA lagging in some quarters as yuan devaluation gathers pace.”
GlobalData also notes that after the EU adopts a partial embargo on Russian oil along with a ban on shipping insurance for oil exports from Russia in June 2022, it may be difficult for the EU to remove Russian oil from the market without harming consumers. cost drives inflation*.
Tiwari continues: “As a result of EU sanctions on Russia and Russia’s response to cut off energy supplies to Europe, economies in the EU remain vulnerable, especially considering that more than 40% of gas and 25% of EU oil supplies are imported. from Russia in 2021 Inflation has been rising sharply in EA since March 2022, reaching a record high of 9.1% in August 2022, as power outages sent energy costs skyrocketing. EA inflation is forecast to rise to 7.8% in 2022 from 2.6% in 2021.”
According to GlobalData, the Netherlands is expected to have the highest inflation rate among major EA economies in 2022 at 8.5%. It is followed by Spain (8.4%), Germany (7.8%), Greece (7.5%), Italy (7.1%) and France (5.7%). The inflation rate in Greece in July 2022 was 11.6%, which was the highest in the EA.
Tiwari concludes: “Due to unaffordable electricity bills, some factories have already reduced production or temporarily closed. In addition, a high level of inflation reduces the purchasing power of households, which, in turn, will lead to a decrease in overall domestic demand and, accordingly, economic activity.
“In the long term, countries plan to switch to green energy in order to reduce dependence on Russian imports. However, in the short term, countries should explore other alternative markets, such as Qatar and other major oil and gas producers, as a substitute for Russia to prevent further price increases.”
* Cost-push inflation occurs when the cost of production increases, causing output to decrease at each price level, so the aggregate supply curve shifts to the left, causing the price level in the economy to increase.