Fig 1_GDP growth in the EU

Real GDP growth in the EU is set to reach 3.3 % in 2022, despite a sharp slowdown towards the second half of the year and an expected contraction beginning in the fourth quarter. Hard data indicators such as industrial production, in particular in energy-intensive subsectors, and production numbers in the construction sector and retail trade, already pointed to a slowdown of economic activity over the summer of 2022. More forward-looking economic sentiment indicators and signals from businesses and consumers reflect the multiple shocks from high-energy price pressures, the erosion of households’ purchasing power, and a weaker external environment amid elevated geo-economic uncertainty. The composite output purchasing managers’ index (PMI) for the EU, a gauge for short-term economic growth, dropped to 47.1, recording the fourth successive reading below the zero-growth threshold of 50 points, as businesses face shortages of materials and equipment that limit their activity. Economic uncertainty also took its toll on order books, as goods and services dropped because of weakened demand, and business confidence plummeted.