How has Europe’s economy been affected by Russia’s war in Ukraine?

The European Commission’s Winter 2022 Economic Forecast came out on 10 February, just two weeks before Russia invaded Ukraine. At that point, the economy was on a path of recovery and growth coming out of the pandemic.

In the European Commission’s Spring 2022 Economic Forecast on 16 May, these figures have been dramatically revised.

The Winter Forecast projected the EU economy and the euro area would grow by 4 percent in 2022 and by 2.8 percent in 2023 for the EU and 2.7 percent for the euro area. It also forecast that inflation would be 3.5 percent in the euro area and 3.9 percent in the EU in 2022, and decline to 1.7 percent in the euro area and 1.9 percent in the EU in 2023.

The Spring Forecast sees projected growth for both the EU and euro area cut down to 2.7 percent for 2022 and 2.3 percent in 2023. The Inflation forecast has been raised to 6.8 percent in the EU before falling back to 3.2 percent in 2023. For the euro area, it is projected at 6.1 percent before falling to 2.7 percent in 2023.

What are the main factors affecting the economy?

The war has exacerbated existing economic problems such as rising energy prices and supply chain disruption.

The main negative factor is the surge in energy prices, due to Europe’s dependency on Russian energy. This is driving inflation to record highs and putting a strain on European businesses and households. 

Ukraine and Russia produce almost a third of the world's wheat and barley and are major exporters of metals. Disruptions to these supply chains as well as rising costs for many raw materials have pushed up the cost of food and other basic goods & services.

What is the outlook for Europe’s economy?

As long as Russia’s war in Ukraine continues, uncertainty and risks to the outlook will remain high. While growth will continue this year and next, it will be much more subdued than previously expected.