The European Union’s (EU) economy should be back on track in 2022, after a slowdown in winter due to the spread of the Omicron Covid-19 variant, European Commissioner for Economy Paolo Gentiloni said while presenting the European Commission’s Winter 2022 Economic Forecast.

“The EU as a whole reached its pre-pandemic level of GDP in the third quarter of 2021 and all Member States are projected to have passed this milestone by the end of 2022,” said a statement on the forecast.

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The EU’s economy grew by 5.3 per cent in 2021.

According to the Winter 2022 Economic Forecast, it should grow by 4 per cent this year, and 2.8 per cent in 2023.

In autumn last year, the EU’s economic growth was hampered by the emergence of the Omicron variant. Mild restrictive measures were introduced, which affected services particularly, according to Gentiloni.

More supply constraints and high energy prices also affected the manufacturing sector, driving inflation higher.

This led the EU’s economy to grow by only 0.4 per cent in the last quarter of 2021, compared to 2.2 per cent in the previous quarter. While the slowdown had been expected, it was stronger than projected.

Factors straining the economy, such as labour shortage and supply bottlenecks, are expected to ease out in the second half of 2022. Energy prices, however, should stay elevated for a longer period, according to Gentiloni.

However, the fundamentals remain solid, the commissioner said, and the EU’s economy will regain traction. The current wave of infections should pass and inflation pressure should moderate. Labour markets have improved, household savings are high, and the financing conditions are still favourable.

Moreover, the full deployment of the Recovery and Resilience Facility (RRF), an investment instrument put in place by the European Commission to facilitate the post-pandemic economic recovery of the bloc, should sustain a “prolonged and robust expansionary phase”.

Inflation picked up in the last few months, driven by the price of energy and supply bottlenecks.

“After reaching a record rate of 4.6 per cent in the fourth quarter of last year, inflation in the euro area is projected to peak at 4.8 per cent in the first quarter of 2022 and remain above 3 per cent until the third quarter of the year,” said the statement.

Inflation should then decline to 2.1 per cent in the last three months of the year, and then go below 2 per cent in 2023. That is the desired inflation rate that the European Central Bank wants to maintain.

Some risks, however, will remain high, including the uncertainty of how the pandemic might evolve, as well as geopolitical tensions on the Ukrainian border with Russia.

These can be balanced out by a higher-than-expected demand from households once economies have fully reopened.