As you have likely heard, the EU commission, has in early February 2022, issued its Winter Economic Forecast. In this forecast, the prediction is that Malta will have the highest GDP growth in 2022, from across the EU block, at around 6%. However, like any forecast, the EU commission’s forecast was built on a number of assumptions. What are these assumptions?
- That beyond Q1 2022, the pandemic will not have any major effect on the economy.
- That inflationary pressures will subside later on in 2022 especially from Q3 2022 onwards.
- That since inflationary pressures will subside in the course of 2022, central banks will not be forced to tighten monetary policy and increase interest rates.
Now since the issue of the EU commission’s winter GDP forecast, the Ukrainian conflict has escalated. This conflict brings with it a number of new downside risks. First of all, the risk that we lose control over the pandemic as Ukraine is one of the least vaccinated countries and Ukrainians are now forced to flee the country and find refuge elsewhere. Add to that the obvious inflationary pressures from an energy and foodstuff perspective as Russia is a top producer of gas and oil resources and Ukraine is a world top producer of various grains.
Hence, the issued EU commission Winter forecast, needs to be taken within this new perspective, as surely that forecast will be impacted by the effects of the Ukrainian conflict. God forbid, that this conflict escalates even more and spreads to something bigger, with devastating effects for all.