The European Union has slashed its forecasts for economic growth in the 27-nation bloc amid the prospect of a drawn-out Russian war in Ukraine and disruptions to energy supplies.
The EU’s gross domestic product (GDP) will expand 2.7% this year and 2.3% in 2023, the bloc’s executive arm said on Monday – its first economic predictions since Russia invaded Ukraine on February 24.
The European Commission’s previous outlook expected growth of 4% this year and 2.8% in 2023.
The EU economy expanded 5.4% last year following a deep recession prompted by the Covid-19 pandemic.
GDP shrank 5.9% in 2020.
“Russia’s invasion of Ukraine has posed new challenges, just as the union had recovered from the economic impacts of the pandemic,” the commission said when releasing the forecast.
“The war is exacerbating pre-existing headwinds to growth.”
The war darkened what was generally a bright economic picture for the EU.
Early this year, European policymakers were counting on solid, if weaker, growth while grappling with surging inflation triggered by a global energy squeeze.
Now, energy has become a key problem for the EU as it seeks sanctions that deny Russia tens of billions in trade revenue without plunging member countries into recession.
Soaring energy prices are driving record inflation, making everything from food to housing more expensive.
Russia is the EU’s top supplier of oil, natural gas and coal, accounting for around a quarter of the bloc’s total energy.
EU imports of energy from Russia last year totalled 99 billion euros (£84 billion), or 62% of the bloc’s purchases of Russian goods.
An EU ban on coal from Russia is due to start in August and a voluntary effort is under way to reduce demand for Russian natural gas by two-thirds this year.
A proposed oil embargo has hit roadblocks amid reservations from some landlocked countries that are highly dependent on Russian oil, such as Hungary.
All of this has left the EU scrambling to secure alternative supplies of energy in the coming months, including from fossil fuel-exporting countries such as the United States and from domestic renewable sources meant to help the bloc achieve its longer-term climate goals.