Summer 2022 Economic Forecast

Russian invasion worsens the EU’s economic outlook

Each year, the European Commission publishes four economic forecasts – two comprehensive forecasts for Spring and Autumn, and two interim forecasts for Winter and Summer. The aim of the interim forecasts is to provide an update on the comprehensive forecasts with specific focus on GDP and inflation developments in all EU Member States.

Further to the Spring 2022 Economic Forecast, presented in May, the Summer 2022 Economic forecast shows that Russia's war of aggression against Ukraine continues to negatively affect the EU economy, setting it on a path of lower growth and higher inflation compared to the Spring Forecast.

Shocks unleashed by the war take a toll on growth
The shocks unleashed by the war are hitting the EU economy both directly and indirectly. Consequently, while the EU economy is set to continue growing it will be at a significantly slower pace than expected in the Spring 2022 Forecast.

Real GDP real GDP growth is forecast to grow by 2.7% in 2022 and 1.5% in 2023 in the EU and by 2.6% in 2022 and 1.4% in 2023 the euro area.

For Malta, real GDP growth is forecast to reach 4.9% in 2022, which is higher than projected in spring (4.2%). This is mainly the result of expected stronger gains in the services sectors, particularly the tourism sector which is expected to fully recover by 2023.

By 2023, Malta’s real GDP is forecast to increase at a slower pace, but still by a robust 3.8%, which is slightly lower than projected in spring (4.0%).

Record high inflation expected to ease in 2023
Inflation until June 2022 has hit record highs, as energy and food prices continued growing and price pressures broadened to services and other goods. The forecast for inflation has been revised considerably upwards compared to the Spring Forecast.

Overall, inflation in the EU is forecast to increase to 8.3% and to 7.6% in the Euro area in 2022. It is then projected to peak to a new record high of 8.4% in the third quarter of 2022 in the euro area.

Having said this, as the pressures from energy prices and supply constraints fade, inflation is expected to decline steadily thereafter and to fall below 3% by the end of 2023, in both the euro area and the EU.

Inflation in Malta has been increasing considerably over the first half of 2022 and is set to continue rising. Overall, in 2022 inflation in Malta is set to increase to 5.6% in 2022 and to remain elevated in 2023 at 3.3%.

Risks remain high and dependent on the war
Risks to the forecast for economic activity and inflation are heavily dependent on the evolution of the war and in particular its implications for gas supply to Europe. New increases of gas prices could further drive-up inflation and stifle growth. There is also the possibility of a sharper tightening of financial conditions is not ruled out. This would not only weigh on growth, but also on financial stability.

On the other hand, recent downward tendencies of prices of oil and other commodities could intensify, bringing about a faster decline in inflation than currently expected. Moreover, thanks to a strong labour market, private consumption could prove more resilient to increasing prices if households were to use more of their accumulated savings. Finally, COVID-19 remains a risk factor.

For more detailed information on the Summer 2022 Economic Forecast click here.

To view the Summer 2022 Economic Forecast for Malta click here.