EU lowers economic growth forecast year and next. Inflation hits people's willingness to spend in shops, rates restricting credit.
FRANKFURT, Germany – The European Union has lowered its forecast for economic growth this year and next, saying inflation is taking a heavy toll on people’s willingness to spend in shops – while higher interest rates are sharply restricting the credit needed for investment and purchases.
“Weakness in domestic demand, in particular consumption, shows that high and still increasing consumer prices for most goods and services are taking a heavier toll than expected,” a commission statement said. Recession fears have grown even after the eurozone scraped through the winter without one, recording stagnant growth of 0.1% in the first two quarters of this year.
The commission cut its forecast for Europe’s largest economy this year to minus 0.4%. Germany is the only major economy expected to shrink this year, according to the International Monetary Fund, which foresees a decline of 0.3%. The eurozone suffered twin shocks from the invasion of Ukraine and the COVID-19 pandemic. Russia cut off most of its natural gas to Europe, sending prices skyrocketing and starting a scramble to line up more expensive alternative supplies.
ECB President Christine Lagarde has said the decision is open and will be made based on available data. In just over a year, the central bank has raised its benchmark deposit rate from minus 0.5% to 3.75%, the fastest pace since the euro currency launched in 1999.
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