Euro Area Economic Forecast

Economic Snapshot for the Euro Area

May 5, 2022

Russia-Ukraine War Economic Impact - Analysis & Special Reports

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Euro area economic activity to moderate this year

The economy expanded at a weaker pace in Q1 2022. Germany, the Euro area’s largest economy, came close to falling into a recession. Soaring inflation and souring consumer sentiment seemingly hit household spending in the currency area. That said, manufacturing activity likely held up better, with average PMI readings in Q1 remaining roughly at Q4 levels. Moving to Q2, looser Covid-19 restrictions boosted the PMI in April. However, still-downbeat consumer sentiment in April, coupled with tightening financial conditions and high energy and commodity prices, bodes poorly for activity. Meanwhile, the ongoing conflict in Ukraine and the adoption of further sanctions against Russia by the EU spell trouble for momentum ahead. In politics, the presidential election victory in April of the pro-EU politician Emmanuel Macron in France will likely boost the political stability of EU institutions.

Inflation to remain high in 2022

Harmonized inflation rose to 7.5% in April from March’s 7.4%, marking the highest print since records began in 1997. Loose fiscal and monetary policies coupled with high energy prices and supply bottlenecks will stoke inflation this year, with upside risks stemming from the Russia-Ukraine conflict and China’s Covid-19 policy.


 

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