The chief of the European Central Bank (ECB) has warned that the economic outlook for the continent “is darkening” and that business activity could “slow substantially” in the coming months amid skyrocketing food and energy prices in the wake of the Ukraine war.
Christine Lagarde, speaking at the European Parliament on whether the eurozone would sink into recession, admitted that Russia's military operation in Ukraine, now into its eighth month, "continues to cast a shadow over Europe."
"The economic consequences for the euro area have continued to unfold since we last met in June and the outlook is darkening”, the ECB head said.
She noted that inflation across the euro area remains “far too high”, expecting that it will stay above a target of two percent for an extended period.
The next year, Lagarde cautioned, would be “certainly, a difficult year” and that the first three months of 2023 “will most likely be negative, as we believe that the fourth quarter of 2022 will be negative as well."
The ECB head further pointed out that “higher energy and food prices are weighing in, particularly on the most vulnerable households and the situation is expected to get worse before it gets better.”
The rising inflation comes as Europe has been grappling with a severe energy crisis since the start of Russia's military operation in Ukraine on February 24.
Russia launched the military operation in the former Soviet republic following Kiev’s failure to implement the terms of the 2014 Minsk agreements and Moscow’s recognition of the breakaway regions of Donetsk and Luhansk.
At the time, Russian President Vladimir Putin said one of the goals of what he called a “special military operation” was to “de-Nazify” Ukraine.
The United States and its European allies have imposed waves of economic sanctions against Moscow while supplying large consignments of heavy weaponry to Kiev despite Russian warnings.
Moscow has been critical of weapons supplies to Kiev by Washington and its Western allies, warning it will only prolong the conflict.
The war in Ukraine and sanctions on Russia have fueled a rapidly worsening energy crunch on the European continent, sparking worries ahead of the winter.
Russia has cut off most gas shipments to Europe, which has for long relied heavily on Russian energy supplies, exposing the euro-zone countries to the economic fallout from the war more than other major global economies.