Europe was already experiencing high inflation rates at the start of 2022<\/a>. Russia\u2019s attack on Ukraine led to a noticeable shortage of important goods, above all, energy and agricultural products. The result was even higher inflation rates, which in some cases reached double digits.<\/p>\n A high inflation rate dampens economic development through various channels. The most important of these include a decline in demand for consumer and investment goods:<\/p>\n The global shortage of raw materials and the disruption of trade relations with Russia are hitting the Central and Eastern European economies particularly hard. This is partly because these countries have had especially intensive trade relations with Russia due to their geographical closeness to Russia and their history. Falling imports and declining export opportunities are hitting these countries hard.<\/p>\n On the other hand, some of the Central and Eastern European economies are particularly energy-intensive and, therefore, dependent on fossil fuels such as natural gas, coal and oil. Rising energy prices<\/a> also hit these countries disproportionately strongly.<\/p>\n As a result, inflation rates in Central and Eastern Europe in 2022 are significantly higher than in most other EU countries. Even though annual inflation rates are expected to fall in 2023, inflation rates in Eastern Europe will remain well above the overall EU price level increase.<\/p>\n The negative economic consequences of high inflation outlined above will lead to a technical recession in the winter of 2022\/23. (Real gross domestic product (GDP) declines in two consecutive quarters)<\/p>\n In its economic forecast published in November 2022, the European Commission assumes that such a recession will occur<\/a> in the EU at the turn of 2022\/23. However, the recession is expected to last only two quarters and to be small.<\/p>\n Due to the anticipated economic recovery from summer 2023 onwards, the European Commission expects real GDP in 2023 \u2013 with the exception of Germany, Latvia and Sweden \u2013 to be higher than in 2022.<\/p>\n Europe\u2019s economic development also depends on the development of the American economy. The U.S. is both an attractive sales market and an economic competitor for European companies.<\/p>\n The U.S. government launched enormous economic stimulus packages when the corona pandemic broke out, and the economic slump in 2020 was much less severe than in the euro area. In 2021, the U.S. was already almost back to full employment, and demand for goods was high. As a result, inflation in the U.S. in 2021 was significantly higher at 4.7 percent than in the euro area at only 2.6 percent.<\/p>\n The U.S. Federal Reserve therefore had to raise its key interest rates earlier<\/a> and more sharply than the European Central Bank (ECB). The International Monetary Fund expects the inflation rate in the U.S. to be significantly lower than<\/a> the inflation rate in the euro area in 2023 because of this monetary policy.<\/p>\n The price paid by the U.S. for this fight against inflation is lower economic growth in 2022, but the ECB will also have to continue to raise its key interest rate<\/a> because of the high inflation rates. In 2023, economic growth in the euro area should therefore be lower than in the U.S.<\/p>\n As a sales market, the US economy will develop positively for European companies in 2023. However, competitive pressure from the U.S. will increase.<\/p>\n American companies have at least three advantages over their European competitors:<\/p>\n These competitive advantages have two key disadvantages for the European economy:<\/p>\n However, it should be noted that European countries are also implementing measures to support their companies. For example, the German government decided on a 200 billion euro package in the fall of 2022<\/a>. Among other things, this money will be used to enable companies to purchase gas and electricity at lower prices than the prevailing market prices.<\/p>\n As in 2022, 2023 will be characterized by supply shortages in energy and agricultural products. A combination of energy-saving measures and the development of new energy imports has, so far, prevented energy shortages in Europe. In particular, a feared shortage of natural gas has been avoided.<\/p>\n The decisive factor for European economic development in 2023 will be how abundant the energy supply is in the winter of 2023\/24.<\/p>\n Securing energy supply is, therefore, a top priority for 2023. In addition, other economic risks must be kept as low as possible – in particular:<\/p>\n The conclusion to be drawn is the year 2023 will be associated with major challenges for economic policy.<\/p>\n About the author<\/strong><\/p>\n Thie\u00df Petersen is Senior Advisor at the Bertelsmann Stiftung, specializing in macro-economic studies and economics. His focus lies on the causes and effects of financial and economic crises as well as the chances and risks of globalization. Among others, he has recently worked on the effects of carbon pricing and the benefits of a potential global climate club.<\/p>\n Read more<\/strong><\/p>\n Is Europe Threatened by Stagflation?<\/a><\/p>\n A Weak Euro \u2013 What Does it Mean for Europe\u2019s Economy?<\/a><\/p>\n\n
Central and Eastern Europe suffers particularly severely from the consequences of the Ukraine war<\/strong><\/h2>\n
![\"chart:](\"https:\/\/bst-europe.eu\/wp-content\/uploads\/sites\/24\/2022\/12\/annual-inflation-rate.png\" "\\"chart:")
<\/a><\/p>\nRecession in winter 2022\/23<\/strong><\/h2>\n
![\"chart:](\"https:\/\/bst-europe.eu\/wp-content\/uploads\/sites\/24\/2022\/12\/chart-change-of-real-gdp-EU.png\" "\\"chart:")
<\/a><\/p>\n![\"chart:](\"https:\/\/bst-europe.eu\/wp-content\/uploads\/sites\/24\/2022\/12\/annual-change-of-real-GDP-in-2023.png\" "\\"chart:")
<\/a><\/p>\nImpact of the American economy on Europe<\/strong><\/h2>\n
![\"chart](\"https:\/\/bst-europe.eu\/wp-content\/uploads\/sites\/24\/2022\/12\/chart-comparison-of-economic-development-in-the-euro-area.png\" "\\"chart")
<\/a><\/p>\nCompetitive advantages for American companies<\/strong><\/h2>\n
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Conclusion and outlook<\/strong><\/h2>\n
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