As the war in Ukraine continues, the cost of living for Europeans will rise

Kristine Lagarda, President of the European Central Bank

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Lagarda said household sentiment was becoming more pessimistic and they might have to cut spending. At the same time, companies may be forced to reduce investment. During his visit to Cyprus, Lagarda said that the Russian attack on Ukraine had caused considerable uncertainty about the economic forecasts of the European Union countries.

“The economic impact of war is best described by economists’ term ‘supply turmoil’, which simultaneously raises inflation and reduces growth.

Pressure on food inflation is likely to increase, with Russia and Ukraine accounting for almost 30% of world wheat exports. We need a European approach to working across borders to adapt to this post-invasion world, because we will not return to business the way it was a month ago. The changes will leave their mark in the long run. The transition will be expensive. “Supply chains need to be restructured,” Lagarda said.

CONTEXT:

According to the latest forecasts of the Bank of Latvia, inflation in Latvia will grow faster than previously estimated, but gross domestic product (GDP) growth will be slower. This year’s inflation forecast has been raised from the previously estimated 6.1% to 9.5%, and for next year from 2.9% to 3.7%. In turn, the GDP growth forecast for this year has been reduced from the previously estimated 4.2% to 1.8%, and next year from 4% to 3.2%.

The Bank of Latvia pointed out that Russia’s aggression in Ukraine will slow down the growth of the global economy. Uncertainty about oil and gas supplies, as well as the availability of alternative sources, also leads to high volatility and high prices for energy and other raw materials.

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