For inflation in the Eurozone, the OECD predicts that it will be 7% this year and 4.6% in 2023, ie higher than the ECB forecasts.
The reports of the international financial organizations that came to light last week – of the World Bank, the OECD and the European Central Bank – converge significantly in the assessment of its situation. European economy more than three months after Russian invasion of Ukraine as well as in their forecasts for 2022 -2023.
A common recommendation is that the war in Ukraine casts a heavy shadow, confirming the worst-case scenarios that followed shortly after its inception. At the beginning of last March, the ECB had drawn up a “very negative” scenario, which predicted that average inflation in the Eurozone would reach 7.1% this year at average levels and in 2023 at 2.7%. Three months later, the ECB’s baseline macroeconomic scenario predicts that inflation will reach 6.8% this year and 3.5% next year, ie at corresponding or higher (for 2023) levels.
Respectively, the same scenario of the ECB in March predicted that the GDP of the Eurozone would increase by 2.3% this year and in 2023. The new baseline scenario predicts growth of 2.8% this year and 2.1% in 2023ie close to the previous very negative scenario.
The current baseline scenario of the ECB was based on the assumption that the “intense” phase of the war will be over in 2022. If, however, this assumption is not verified and the war continues in 2023, the forecasts will be exceeded again as there will probably be new sanctions in Russia and therefore new shocks to the economy. In the event of a complete cessation of Russian energy imports, including gas, the prices of the latter will jump again, with inflation rising even more and growth declining further and becoming negative next year. Thus, in the unfavorable scenario announced by the ECB on Thursday, inflation in the Eurozone will reach 8% this year and 6.4% in 2023, while growth will be limited to 1.3% and -2.7%, respectively. .
With regard to development, there is a “consensus” of international organizations that there will be a significant slowdown due to the impact of war and high inflation. However, there is also consensus that a recession will be avoided, as there are factors supporting the recovery, such as strong activity in the tourism and leisure sectors following the lifting of coronavirus restrictions, increased household savings over the past two years and investments through the Recovery Fund.
Aggravating for the development will be the gradual increase of interest rates announced by the ECB, starting in July with an increase of 25 basis points (a quarter of a percentage point). Interest rate increases will continue in September and into 2023, with their amount estimated at current data at 1.5% to 2%, although this will ultimately depend on the course of inflation.
Both the OECD and the World Bank forecast similar growth rates for 2022, with the former forecasting 2.6% and the latter 2.5%, although for 2023 the OECD is more frugal (1.6%). However, as noted by the ECB, the two units of growth this year will be due to carry over from last year’s high growth, ie it will be statistical in nature and therefore only 0.8% will be related to growth that will be created in 2022.
The OECD stressed that the cost of war will be heavy and that it will have a greater impact on the global economy from the pandemic, with their chief economist, Lawrence Boone, estimating that it will significantly weaken investment incentives. On the same wavelength was the World Bank, which warned that global economic growth would be sluggish throughout the decade, also focusing on investment problems.
For inflation in the Eurozone, the OECD predicts that it will be formed at 7% this year and 4.6% in 2023ie higher than forecast by the ECB.
