Europe will enter recession at the end of 2022

This time there is. According to the European Commission’s latest forecasts published on November 11, Europe will be in recession at the end of the year and at least until the spring. “Difficult months await us”Economy Commissioner Paolo Gentiloni admitted.

Decrease in activity and increase in prices

Inflation will continue to rise over the next few months. It should reach 8.5% during 2022, against the previously expected 7.6%. Inflation in Germany was even at 10.4% year-on-year at the end of October, the highest since November 1951, and 10.1% in Portugal, the biggest increase since May 1992.

According to the forecasts of Brussels experts, the slowdown of inflation will be obvious in 2023. They estimate price growth in the euro zone at 6.1%.

As a result, the Commission expects activity growth of only 0.3% in 2023, against the 1.3% expected so far. It should reach 3.2% this year. The revision is sharp and the shock is merciless. Germany, Europe’s largest economy, is expected to record the weakest performance of the EU countries with a 0.6% decline in GDP next year, compared with 0.4% growth in France, 1% in Spain and 0.3% in Italy.

Thus, the European economy will fall to almost zero in early 2022, a year after an annual growth rate of more than 5%.

The shock of war

Why? Europe is particularly affected by the consequences of Russia’s aggression against Ukraine. He “It is among the most affected developed economies due to its geographical proximity to the war zone and its high dependence on gas imports from Russia”The Commission emphasizes in its press release.

But until now, the European economy was at a standstill. Growth was revised upwards in the third quarter, particularly due to good performance in services and tourism. “But the shock of the war takes its toll. Inflation continues to outpace our forecasts, a sharp erosion of purchasing power has weighed on consumer confidence as companies face higher production costs, ongoing supply challenges and tightening financing conditions », Paolo Gentiloni says.

Fear of running out of gas

In rare good news, the European labor market should remain strong. The unemployment rate, which is at a historic low, should not rise “only marginal”, rising from 6.8% this year to 7.2% in 2023 in the Eurozone, the Commission is pushing ahead. But some scenarios are less optimistic and “Uncertainty remains extremely high,” The European Commissioner emphasizes.

Concerns stem above all from gas supplies, which could pose a problem for Europe due to the suspension of Russian supplies and increased Chinese demand. The latter would account for a large portion of the LNG cargoes needed by the Europeans. With the key to a new increase in prices to obtain the valuable molecule.

Gas storages are full for this winter because they are partially filled with Russian gas. Next year it won’t be like that anymore. The International Energy Agency (IEA) estimates that Europe could lose about 30 billion cubic meters of gas, or about 10% of its needs, to get out of the winter of 2023-2024.

The perils of deindustrialization

Paolo Gentiloni warns that if Europe fails to prepare properly, the economic damage could be greater than expected. After that, European GDP will fall by 0.9% in 2023 and prices will rise.

In Brussels, the long-term consequences of this economic stagnation, especially the risk of deindustrialization, are taken very seriously. “Russia-Ukraine conflict and resulting messy energy crisis deal structural blow to eurozone competitiveness: immediate but lasting shock”Crédit Agricole economist Paola Montperrus-Veroni notes.

For example, energy prices are much lower in the US, where the Biden administration is also ramping up protectionist measures that heavily punish Europeans.

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