EU slashes growth, increases inflation forecast as war’s fallout deepens!!!

Russia’s war in Ukraine has darkened what was generally a bright economic picture for the European Union. If Russian natural gas flows are to the European Union are halted, the bloc's economy is likely to slump into a recession, officials said Monday, and nations with the heaviest reliance on those energy supplies are set to suffer the deepest consequences.

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The bloc's economists warned that, whether Moscow shuts off supplies or if an oil embargo falls into place, any halt of natural gas will likely push the EU into a recession.

"Russia's invasion of Ukraine is causing untold suffering and destruction, but is also weighing on Europe's economic recovery," Paolo Gentiloni, European Commissioner for Economy, said in a Monday statement. "Other scenarios are possible under which growth may be lower and inflation higher than we are projecting today."

The European Commission forecasted Monday that gross domestic product will climb 2.7% this year and 2.3% in 2023, lower than its previous prediction of 4% and 2.8%, respectively.

It maintained that Russia's invasion of Ukraine would slow down growth for this year, and that companies and household spending will be hit hard by rising energy prices.

EU economists expect inflation to outpace wage rises, resulting in a 2.8% decline in real household disposable income for 2022.

Notably, they predicted that nations within the eurozone — nations heavily reliant on Russian energy and in close proximity to the war — would see consumer prices climb at an annual average rate of 6.1% in 2022, up from its prior 3.5% forecast.

So far, the Commission has proposed an embargo on Russian oil, with a plan to cut out the crude within six months. Hungary, however, has pushed back, warning it would veto the move unless it gets an exception.

"In its current form, the Brussels package cannot be supported. We cannot responsibly vote for it," Péter Szijjártó, the Hungarian foreign minister, said in a Facebook video, according to the Financial Times.

An oil analyst previously told Insider that an oil embargo would crater Russia's economy and send the country spiraling into a depression.

"Every single dollar a country is paying for Russian oil is funding the war [in Ukraine]. By cutting off those revenues, the goal is to ultimately cut off Russia's ability to continue this war," the analyst said.

The European Union has slashed its forecasts for economic growth in the 27-nation bloc amid the prospect of a drawn-out Russian war in Ukraine and disruptions to energy supplies.

The EU’s gross domestic product (GDP) will expand 2.7 percent this year and 2.3 percent in 2023, the bloc’s executive arm said Monday — its first economic predictions since Russia invaded Ukraine on February 24.

The European Commission’s previous outlook expected growth of 4 percent this year and 2.8 percent in 2023. The EU economy expanded 5.4 percent last year following a deep recession prompted by the COVID-19 pandemic. GDP shrank 5.9 percent in 2020.

“Russia’s invasion of Ukraine has posed new challenges, just as the union had recovered from the economic impacts of the pandemic,” the commission said when releasing the forecast. “The war is exacerbating pre-existing headwinds to growth.”

The war has darkened what was generally a bright economic picture for the EU. Early this year, European policymakers were counting on solid, if weaker, growth while grappling with surging inflation triggered by a global energy squeeze.

Now, energy has become a key problem for the EU as it seeks sanctions that deny Russia tens of billions of dollars in trade revenue without plunging member countries into recession. Soaring energy prices are driving record inflation, making everything from food to transport and housing more expensive.

Russia is the EU’s top supplier of oil, natural gas and coal, accounting for around a quarter of the bloc’s total energy. EU imports of energy from Russia last year totaled 99 billion euros ($103bn), or 62 percent of the bloc’s purchases of Russian goods.

An EU ban on coal from Russia is due to start in August, and a voluntary effort is under way to reduce demand for Russian natural gas by two-thirds this year. A proposed oil embargo has hit roadblocks amid reservations from some landlocked countries that are highly dependent on Russian oil, such as Hungary.

All of this has left the EU scrambling to secure alternative supplies of energy in the coming months, including from fossil-fuel exporting countries such as the United States and from domestic renewable sources meant to help the bloc achieve its longer-term climate goals.

“Russia’s invasion of Ukraine is leading to an economic decoupling of the EU from Russia, with consequences that are difficult to fully apprehend at this stage,” the European Commission said.