Forecast For The Eurozone Are Not Optimistic, Inflation Can Reach A Record High

The euro zone has been battling against surging inflation for about a year, with Russia’s invasion of Ukraine accentuating those inflationary pressures. The European Central Bank has meanwhile raised interest rates three times this year to tackle the rising prices.

Expectations

According to the autumn economic forecast of the European Commission, in the last quarter of 2022, the euro area and most EU countries will be in economic recession.

Prices are expected to fall in 2023, but inflation is projected to remain at 7% in the EU and 6.1% in the euro area before falling to 3% in the EU and 2.6% in the euro area in 2024 r.

The EU forecast was based on the assumption that geopolitical tensions, such as the war in Ukraine, would not normalize or escalate and sanctions against Russia would remain in place.

EU labour markets are expected to react to the slowing economy. Unemployment rates in the EU were projected to be at 6.2% in 2022, 6.5% in 2023, and 6.4% in 2024.

GDP growth will be around just 0.3% in the EU and euro area in 2023, the European Commission predicted.

Inflation

The new percentages were revised up from the European Commission's last economic outlook, which predicted that inflation would reach an average of 7.6% in the eurozone this year and 8.3% in the EU.

Inflation in the eurozone reached a record high.

Eurozone inflation is expected to hit a new record high of 10.7% in October. Eurostat's October estimates predict that the prices of food, alcohol and tobacco, non-energy industrial goods and services will rise from August and September, when annual euro area inflation was expected to be 9.1 percent and 9.9 percent respectively.

Official figures will be released on Thursday, November 17

Energy prices were again the main driver of inflation with a 41.9% increase year-on-year, compared with 40.7% in September and 38.6% in August.

Euro area #inflation up to 10.7% in October 2022: energy +41.9%, food, alcohol & tobacco +13.1%, other goods +6.0%, services +4.4% - flash estimate https://t.co/b9t9sOMDLM pic.twitter.com/NbsakF4eVe

— EU_Eurostat (@EU_Eurostat) October 31, 2022

Every corner of the continent is facing rising prices and the expected economic recovery in Europe after the coronavirus pandemic is hampered by a number of factors.

The Baltic countries remain the hardest hit, with annual inflation above 20%. Estonia leads in comparison with estimates of 22.4%.

This is mainly because they are particularly vulnerable to fluctuations in the energy markets. According to Eurostat, the price of natural gas for households increased by 154% and 110% respectively in Estonia and Lithuania between the first half of 2021 and the first half of this year.

Meanwhile, France maintained its position as the country least affected by the crisis, although annual inflation in October was 7.1%.

The European Central Bank (ECB) raised interest rates

Central banks use their interest rates to make money more expensive or cheaper to increase or reduce spending as they directly affect the interest rates offered to households and businesses by commercial banks.

Following in the footsteps of its counterparts elsewhere in the world, in July the European Central Bank (ECB) raised interest rates for the first time in 11 years by more than expected as it pursues persistently high inflation.

This was followed by another record rate hike in September, raising new questions about whether the rush to increase credit costs and keep inflation in check will plunge major economies into recession.

On October 27, the ECB raised interest rates again, increasing the deposit rate by another 75 basis points to 1.5 percent. – the highest level in over a decade.

Further such increases are expected in the coming months as "inflation remains far too high and will remain above the [2%] target in the extended version."

Source: ec.europa.eu/eurostat/en