EU slashes growth forecast amid soaring energy prices

VLADIMIR PUTIN’S war will slam the brakes on Europe’s recovery as surging energy prices risk causing the economy to grind to a halt, the EU has warned in a gloomy set of forecasts.

The European Commission said that the war in Ukraine “tests EU economic resilience” as households are battered by surging prices.

Brussels predicted the region’s growth rate will halve this year as it slashed its economic projections and warned of a slump in German GDP.

The squeeze on households from soaring energy bills will cause eurozone GDP growth to weaken from 5.4pc last year to 2.7pc in 2022, a downgrade from the 4pc expansion predicted shortly before war rocked Europe.

In its spring forecasts, the commission predicted that eurozone growth in 2022 would slow to just 0.2pc and inflation would breach the 9pc mark if Russian gas supplies were suddenly halted.

Brussels currently expects inflation to hit 6.1pc over this year before falling back to 2.7pc in 2023 as energy and food bills rocket.

Paolo Gentiloni, the economy commissioner, said the conflict has “clearly exacerbated the headwinds” facing the eurozone as he described the new projections as “one of the steepest downgrades between forecasts of recent years”. He added: “The war has dramatically raised uncertainty and severely dented household and business confidence just as most of the EU was shaking off the pandemic blow.”

Mr Gentiloni said even this year’s predicted growth rate is flattered by a “carry over effect”. Annual growth in 2022 is helped by a weak first half of 2021 but “within-year growth” has been cut from 2.1pc to 0.8pc, suggesting much slower momentum.

Among the “big four” eurozone economies, growth is expected to be weakest in Germany with GDP expected to fall in the second quarter.

German output will expand 1.6pc this year while growth will slow to 3.1pc in France and 2.4pc in Italy. Spain is expected to maintain strong growth at 4pc as its economy is boosted by the recovery in tourism.

It came as lockdowns in China triggered a plunge in factory production and spending. Retail sales tumbled 11pc year-on-year in April while industrial production dropped 3pc in the worst set of figures since Covid first hit. Unemployment rose to 6.1pc in April.

Iris Pang, China economist at ING, said the figures suggest the world’s second-largest economy will contract in the second quarter due to the draconian lockdowns imposed in some of its cities.