Euro Area Economic Forecast

Economic Snapshot for the Euro Area

June 30, 2022

Russia-Ukraine War Economic Impact - Analysis & Special Reports

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Euro area economic activity to moderate this year

The economy likely expanded at a milder pace in Q2 compared to Q1. In April, industrial production increased timidly, restrained by surging energy prices and supply shortages. Meanwhile, retail sales took a hit amid soaring inflation and souring consumer sentiment. Consumer sentiment remained deeply entrenched in negative territory during May and June, with purchasing power squeezed by a further spike in inflation. Finally, sovereign bond rates have risen. On the other hand, the PMI readings have remained in expansionary terrain in Q2. In June, the EU approved a sixth round of sanctions against Russia, targeting oil and top bank Sberbank, and it signed a gas deal with Israel and Egypt to diversify energy provision away from Russia. Meanwhile, tensions are mounting between the UK and EU, with potential implications for trade, over the former’s attempts to rewrite trading rules for Northern Ireland.

Inflation to remain high in 2022

Harmonized inflation jumped to a series high of 8.1% in May, from April’s 7.4% reading. Loose fiscal and monetary policies, elevated commodity prices and supply chain disruptions will stoke inflation this year. The fallout from the war in Ukraine, second-round effects and further lockdowns in China pose upside risks.


 

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