EU economy forecast to grow quicker this year, but faces headwinds

The EU economy is to grow faster than expected this year but high energy prices, supply chain issues and the possibility of a fresh surge in Covid-19 infections pose a significant risk, the European Commission said Thursday in its latest forecast.

Gross domestic product is anticipated to grow 5% year-on-year in the EU in 2021 and then 4.3% in 2022 - both in the whole EU and in the 19-member Eurozone currency zone.

“The European economy is moving from recovery to expansion but is now facing some headwinds,” European Economy Commissioner Paolo Gentiloni said in a statement.

The new 2022 forecast is slightly lower than the commission’s last prognosis from July, when growth was anticipated at 4.5%. The 2021 GDP growth forecast is slightly higher, however.

“Bottlenecks and disruptions in global supply are weighing on activity in the EU ... Moreover, after having fallen sharply in 2020, energy prices, particularly for natural gas, have increased at a tumultuous pace,” the commission said in a press release.

High inflation

The annual inflation rate, which is surging largely due to energy prices, reached historic heights of 4.1% in October in the 19-member eurozone, the commission noted, but stressed this was a "temporary" trend.

It is expected to peak at 2.4% this year, fall to 2.2% in 2022 and then 1.4% in 2023 in the eurozone.

The figures are marginally higher for the 27-member EU.

The generally rosy outlook faces several risks, including the reimposition of virus lockdowns – which the commission said “cannot be ruled out,” particularly in member states with low vaccination rates.