Eurozone inflation forecasts double as the bloc’s growth prospects are lowered due to Russia’s war with Ukraine

Eurozone economists have doubled their inflation forecast for 2022 to 6 percent, according to a survey by the European Central Bank.

Russia’s war in Ukraine and its impact on fuel and food prices also prompted economists to cut their euro-zone growth forecast by more than a point this year.

The news comes a day after ECB President Christine Lagarde said the “journey has begun” to hike interest rates and end bond purchases. Markets are pricing in a rate hike as early as July, despite Ms Lagarde saying ECB decisions are “data dependent”.

The ECB’s latest quarterly survey of professional forecasters said inflation would hit 6 percent this year and 2.4 percent in 2023, versus forecasts of 3 percent and 1.8 percent, respectively, just three months ago.

Core inflation – excluding energy, food, alcohol and tobacco – is expected to reach 2.9 percent this year, versus the previously forecast 2 percent, and 2.3 percent next year, versus 1.8 percent.

Forecasters left their 2024 forecast for headline inflation unchanged at 1.9 percent, but said inflation was likely to reach 2.1 percent by 2026, exceeding the ECB’s 2 percent target.

Forecasters expect gross domestic product in the 19-member single power zone to rise 2.9 percent in 2022 (vs. 4.2 percent expected three months ago), and 2.3 percent next year (vs 2.7 percent) and by 1.8 percent in 2024.

Austin Hughes, chief economist at KBC Ireland, said euro-zone inflation is likely to be higher than the survey predicts and taking longer to fall, leading to growing wage pressures on firms and greater strains on poorer households.

“I think you are moving from low to worrying to still slightly problematic inflation and cost of living pressures that will spread further,” he told the Irish Independent.

“It’s a nasty price shock. I think it’s the aftermath of this runaway inflation that might be more ominous.”

Irish Government forecasts this week predict inflation here will rise to 6.2 per cent in 2022 before falling back to 3 per cent in 2023 and 2.2 per cent in 2024.

“The economy will continue to grow,” Hughes said. “I’m not talking about Apocalypse Now. but [inflation] is a significant load that falls off unevenly, and therefore it is very strong.”

Rising costs and falling profits could result in 15 percent of smaller companies laying off workers when government wage support ends this month, according to a study by the Accounting Authority ACCA and consulting firm Grant Thornton.

Small and medium-sized businesses have seen an average 25 percent increase in costs since the beginning of the year, with 20 percent of the 8,000 companies surveyed saying they are struggling to meet monthly wage obligations. Almost 40 percent of companies have passed costs on to customers.

Mr Hughes said the Government should “try to ease the burden on businesses and consumers”.

“The strains we are currently seeing in the economy are not equal opportunities. They tend to hit certain sectors very hard. Eurozone inflation forecasts double as the bloc’s growth prospects are lowered due to Russia’s war with Ukraine

Fry Electronics Team

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