EU to cut economic growth outlook, sees higher inflation

Euro zone finance ministers said on Monday the fight against inflation was the current priority despite dwindling growth in the bloc, as they are set to be informed of a deteriorating economic outlook by the European Commission.

At a regular monthly meeting of ministers, the EU executive commission will give an update of its economic forecasts, showing slower growth and higher inflation, the commission's vice-president Valdis Dombrovskis said on the sidelines of the meeting.

"One can expect some downwards revisions, even more so for next year," Dombrovskis said, adding that growth remained resilient.

He said "inflation is going to be revised upwards", anticipating the substance of the Commission's forecasts, due to be unveiled on Thursday.

Economics commissioner Paolo Gentiloni warned that risks to the economy were increasing as Russia could cut its gas supplies to Europe. He added Brussels could adopt a number of measures to reduce infationary pressure from gas imports, including price caps, although no decision had been made on that yet.

In May, the Commission had cut its growth forecasts for the 19 countries sharing the euro to 2.7 per cent this year from 4.0 per cent predicted in February, and to 2.3 per cent next year from 2.7 per cent, in its first assessment of the impact of the war in Ukraine on the bloc's economy.

Inflation was estimated in May to be 6.1 per cent for this year, which was in itself a major rise from the previously estimated 3.5 per cent.

Taming price hikes

Despite the expected further drop in economic growth, ministers are focussing on fighting inflation, indicating a will to shift further away from the massive economic stimulus offered during the acute phase of the Covid-19 pandemic.

"The priority is to contain inflation," Spain's economic minister Nadia Calvino told reporters before the meeting.

Inflation is a major concern and is there to stay at high levels also next year, Dutch finance minister Sigrid Kaag said.

To fight skyrocketting prices, estimated by Eurostat at 8.6 per cent on the year in June, ministers are pushing for fiscal prudence

The fiscal advice should recognize that "we have moved away from the need to help the economy," one official said, echoing a recommendation for "a moderately restrictive fiscal policy" next year issued in June by the European Fiscal Board (EBF), an advisory body.

The EBF, whose recommendation will be discussed by ministers on Monday, urged fiscal prudence especially for countries with high debt, such as Italy, Greece or France.

The discussion on the 2023 fiscal stance comes before governments prepare their national budgets for next year.

Fiscal prudence should mean cutting budgets and also embarking on structural reforms, said Belgium's finance minister Vincent Van Peteghem.

The push against inflation would support the European Central Bank's planned tightening of monetary conditions.