Improving business environment is crucial to face rising costs and falling growth

Today, BusinessEurope published its Summer 2022 Economic Outlook, forecasting the EU economy to grow by 2.6% between 2021 and 2022 (a downward revision of 1.3% from our Autumn forecast). But ‘within year’ growth in 2022 is expected to be just 0.6%, raising the prospect that individual EU Member States may experience at least ‘technical recessions’ during 2022.

We anticipate Euro Area inflation of 6.5% in 2022, falling to 2.6% in 2023. But this will depend upon a fall in energy prices and moderate wage increases amidst a very tight labour market. Our forecast suggest EU growth could reach 2.1% in 2023, although there are significant downside risks to such a figure.

The new President of BusinessEurope, Fredrik Persson, who began his term on 1st of July said:

“The EU economy is facing a very difficult period. Whilst some services sectors are continuing to benefit from further reopening following Covid, many industrial sectors have seen output hit by continuing global supply chain problems and are suffering due to rising energy and raw material prices.

Macroeconomic policymakers should find the proper balance between controlling inflation and the need to support the recovery, applying the flexibility of the Stability and Growth Pact rules in 2023 without delaying the long-term strengthening of public finances. Improving the business environment is key to support companies without adding on public debt.

We will all need to be vigilant to the growth of inflationary expectations, with social partners engaging responsibly in collective bargaining on wages to help ensure that temporary price rises do not give rise to a damaging wage-price spiral.

EU policymakers should strengthen the EU Single Market, removing barriers to trade and investment, particularly in energy, digital, banking and capital markets and should pursue an ambitious trade policy whilst diversifying sources of supply. And it is essential to make the best use of the EU’s Recovery and Resilience facility to drive productive investment and reform.”

Read our Summer 2022 Economic Outlook here.

Date: 07.07.2022


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