EURO AREA GROWTH OUTLOOK IN TIMES OF WAR

The war in Ukraine and the knock-on effect it had on commodity and financial markets , as well as the sanctions imposed by western countries on Russia w ill weaken , but not derail growth in the euro area. An outright stoppage of energy imports from Russia, however, would push the euro area into recession. We expect euro area growth to slow to 0.2%qoq in the second quarter as the negative income shock from higher energy prices hits. Financial support from governments will cushion the impact on household s and corporate balance sheet s . Overall, we expect the euro area to grow by 3.1% this year. That said, a stoppage of energy imports from Russia would lead to a rationing of energy and a significant reduction of production in energy intensive sectors . An embargo of Russian energy imports could easily cause a recession similar in size than the one seen in the early phase of the pandemic.