Optimistic EU forecast anticipates 4% GDP growth in 2022

(CN) — Despite expecting inflation to linger for much of the year, the European Union is looking forward to 4% post-pandemic growth, according to a report published by the European Commission on Thursday.

Following a 5.9% GDP decrease in 2020, the EU tracked a 5.3% GDP expansion throughout 2021, beginning with a spring surge of economic activity, followed by a decline from 2.2% in the fall to .4% during the winter omicron surge.

Ireland, Malta, Spain and Poland are expected to top 5% growth through 2022. With 3% or less projected growth, the Netherlands, Finland and Denmark have the lowest projections through the year.

Since GDP as a whole recovered to pre-pandemic levels at the beginning of the year, the EU predicts each member state will reach this turning point by the end of the year.

“Growth continues to be shaped by the pandemic, with many EU countries under pressure from a combination of increased strain on healthcare systems and staff shortages due to illness, precautionary quarantines or care duties,” the report explained.

The European Commission foresees the economy dragged down by supply chain bottlenecks and surges in energy prices through the second quarter.

These factors contribute to rising inflation which reached a record 4.6% at the end of 2021. During the first quarter of 2022, the report predicts inflation will peak at 4.8%, then decline toward 3% through the fall.

“Multiple headwinds have chilled Europe's economy this winter: the swift spread of omicron, a further rise in inflation driven by soaring energy prices and persistent supply-chain disruptions,” explained Paolo Gentiloni, the European commissioner for the economy, in a statement. “With these headwinds expected to fade progressively, we project growth to pick up speed again already this spring.”

With an overall predicted average of 3.9% inflation in 2022, the EU expects inflation to decline to 1.9% in 2023.

“Inflation may turn out higher than expected if cost pressures are eventually passed on from producer to consumer prices to a larger extent than projected, amplifying the risk of second-round effects. Risks to the growth and inflation outlook are markedly aggravated by geopolitical tensions in Eastern Europe,” the report found.

That is, growing tension between the Ukraine and Russia. Other risks may be compounded by fiscal and monetary policy, in addition to the unpredictable Covid-19 virus, noted Joerg Bibow, an economics professor at Skidmore College.

“Covid-19, of course, remains a big uncertainty. We don't know what the next variant might bring, whether this is really over or we get another wave,” Bibow said. “We know the geopolitical situation in the Ukraine is very complicated. We know the energy dependence of Europe and that energy prices have been a huge factor already. So the geopolitical and the pandemic situation remain big uncertainties.”

While risks remain high, the report is overall optimistic about the future.

“Looking beyond the short-term turbulence, the fundamentals underpinning this expansionary phase continue to be strong,” the report said.

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