EU expects Russia sanctions to hurt growth, inflation and debt

Russia’s invasion of Ukraine has raised fears of higher inflation and slower growth, prompting the EU to review its 2023 budget guidance.

Uropean Commission officials hinted today that “high uncertainty” could lead them to temporarily extend the rejection of EU debt and deficit limits this year.

“Russia’s invasion of Ukraine is likely to have a negative impact on growth, including through effects on financial markets, further energy price pressures, more persistent supply chain bottlenecks. and the effects on confidence that we should not underestimate,” the Commission’s Economic Director Paolo Gentiloni.

The news comes after eurozone inflation spiked to 5.8 percent in February, a new high, Eurostat said on Wednesday.

Prices in Ireland rose 5.7pc last month, a 20-year high reached the previous December.

In an exchange aimed at guiding the EU governments’ draft 2023 budget, the Commission said that “the invasion of Ukraine is expected to have a negative impact on [inflation] opinion”.

Gentiloni said the war would not “derail” the recovery of the EU economy, but Commission Vice-President Valdis Dombrovskis said international sanctions were on the banks, businesses, oligarchs and Russian trade could have a “direct budgetary impact” across the bloc.

“This is a price worth paying for defending democracy and the right of European nations to determine their own destiny,” he said.

The commission is still recommending that “highly indebted” countries begin paying off their debt next year while being “ready to respond to the evolving economic situation”.

Ireland is not considered a highly indebted country in the EU.

EU debt and deficit limits have been suspended during the pandemic but will come into force again in 2023.

In other words, the EU is revising the same budget rules to make more room for governments to spend on climate change and digital infrastructure.

“Russia’s invasion of Ukraine has undermined European and global stability and security,” the European Commission said in its budget statement.

“This crisis has the potential to negatively impact growth, including through implications for financial markets, further pressure on energy prices, persistent supply chain bottlenecks, and an impact on confidence.

“Fiscal policies need to be ready to respond to rapidly changing circumstances.”

The Commission said last month it said growth in the EU and Ireland slowed in the final quarter of 2021 due to the uncertainty caused by the Omicron variant of Covid.

The committee will reassess its growth outlook in mid-May, when it will make a decision on further budget guidance.

On Wednesday, the EU confirmed a new set of sanctions, including the removal of a list of seven Russian banks from the international payment messaging system Swift and a ban on the shipment of euro banknotes to Russia. EU expects Russia sanctions to hurt growth, inflation and debt

Fry Electronics Team

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