The energy crisis is threatening to increase the euro area’s energy bill many times over. This will impede growth in the euro area economy in the near term. Besides energy prices, the prices of other products too have climbed sharply.
The surge in inflation has prompted central banks to normalise their monetary policy. This means they are tightening financing conditions by raising key interest rates.
The euro area imports a major share of the energy it consumes. Research shows that abrupt changes in import prices lead to rapid increases in consumer prices but affect the real economy more slowly.
Russia’s government budget plan that covers all budget levels in 2022−2025 contains optimism. Revenue estimates are based on a relatively benign economic forecast, deficits have been set low, and expenditures are seen to grow very weakly in real terms despite the recession.
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