European Union leaders downgraded their growth forecast Monday to 2.7%, as war in Ukraine fuels inflation. Photo courtesy of the European Union | License Photo
May 16 (UPI) -- The European Union will face a slower than expected economic recovery from the COVID-19 pandemic because of the war in Ukraine.
On Monday, the European Commission sharply downgraded its economic growth forecast for 2022 from 4% to 2.7%.
The commission warned that prices, fueled by higher energy costs, will continue to rise significantly. That forced it to increase its inflation forecast Monday by 3.5 points to 6.1%. Inflation for all of the European Union could reach 6.9% this year.
"The outlook for the EU economy before the outbreak of the war was for a prolonged and robust expansion. But Russia's invasion of Ukraine has posed new challenges, just as the Union had recovered from the economic impacts of the pandemic," the European Commission said in a statement.
"The most important negative factor is soaring energy prices, which are driving inflation to record levels and weighing on European businesses and households," commission Vice President Valdis Dombrovskis said.
The war also is disrupting the supply chain for a number of other raw materials.
The commission stressed that despite the downward revision of the EU's growth forecast, it will remain positive this year following a strong economic rebound once COVID-19 lockdowns were lifted.
Unemployment rates in the EU fell below previous record lows at the end of last year, and the labor market is expected to improve.
But the commission warned that could change if Russia completely cuts off gas supplies to heavily dependent European countries.
"This forecast is however subject to high uncertainty and risks that are closely linked to the development of Russia's war," warned Paolo Gentiloni, commissioner for economy. "Other scenarios are possible under which growth may be lower and inflation higher than we are projecting today."