Uncertainty loomed over Europe's economy this year as the ongoing war between Russia and Ukraine took its toll, even as the continent struggled to recover from the fallout of the pandemic.
On the eve of Feb. 24, few expected the eruption of the war that has so far resulted in 17,595 civilian casualties, including 6,826 deaths and tens of millions facing "potential danger of death," according to UN figures.
Since then, war-driven shocks including surging energy prices, crises of food supply, faster-than-expected monetary tightening, subsidies, and inflation have emerged as major economic issues faced the continent.
Reflecting this turbulence, the world's largest financial institutions, including the IMF and World Bank, have often had to revise their projections for the year and those to come.
In January, the World Bank expected the global economy to expand at around 4.1%, with similar projections for the EU. But now, the global body has cut its growth forecast to 2.9% -- a nearly one-third reduction.
Global growth is forecast to hit 2.7% in 2023, the weakest profile since 2001 excluding the global financial crisis and acute phase of the COVID-19 pandemic, according to the IMF in its report, "Countering The Cost-of-Living Crisis."
"In short, the worst is yet to come, and for many people 2023 will feel like a recession," it cautioned.
'World forgot Economics 101'
Sharing his views on the Development Podcast, World Bank Group chief economist Indermit Gill said the last two years had become a "case study" of how the world forgot basic economics.
"I think it was because of fear, it was because of the disease, it was because of the war, but it was also because of impatience, and I'm hoping that 2023 will not be part of this case study," said Gill.
Underlining that developments in the US, EU, and China had direct worldwide impacts as they made up more than 60% of the global economy, he said the current turmoil emerged out of the compounded effects of different policies and events over the past year.
"You had the invasion of Ukraine, and that plunged Europe into an energy crisis. Second one is China decided to kill COVID-19, which is a mutating virus, which is a very difficult thing to do. And then the third one was that the US decided to kill inflation. This was after feeding it for years through easy money and big government spending," he explained.
"As a result of it, suddenly you had these three big shocks ... all of them essentially happening in 2022. So, it's not just the crisis in Ukraine -- though that's a big part of it -- but you also had these other two things happening at the same time."
Due to all these factors, 2022 was a year of surging inflation unlike that seen in several decades, with the cost-of-living crisis making itself felt more than ever, with energy and food prices becoming key drivers of ever-rising prices.
Winter 2023 likely to be worse for Europe
Gas prices in Europe have risen more than fourfold since 2021, with Russia limiting supplies to less than 20% of their 2021 levels, resulting in energy shortages.
Lately, Deputy Prime Minister Alexander Novak said Moscow would reduce gas exports by about a quarter by the end of 2022, indicating that more difficulties will be awaiting Europe in the year ahead.
"Winter 2022 will be challenging for Europe, but winter 2023 will likely be worse. Fiscal authorities in the region need to plan and coordinate accordingly," according to the IMF.
Global food prices, on the other hand, as the UN FAO food price index fell slightly to 135.7 in November from 135.9 in October, far below the record of 159.7 in March and above pre-war levels.
On the monetary side, central banks have responded to rising inflation by further tightening, with interest rates reaching 4.5% in the US, 2.5% in the eurozone and 3.5% in the UK, accelerating recession concerns.
The European Central Bank recently said the eurozone economy would contract in the current and next quarters due to the energy crisis, global uncertainties, a weaker global economy and tightening financing conditions.
The bank expected the economy to see growth figures of 3.4% in 2022, 0.5% in 2023, 1.9% in 2024, and 1.8% in 2025.
The euro area's gross domestic product expanded 2.3% in the third quarter on a yearly basis, according to the EU's statistical body.
And, the bloc's annual inflation remained in double digits with 10% in November.
Meanwhile, the EU unveiled its ninth sanctions package against Russia, targeting its economy and individuals who have played central roles in Ukraine.
The new measures blacklist almost 200 individuals and entities, impose restrictions on three Russian banks, several export curbs, and include bans on four Russian media outlets.
Russian Foreign Ministry spokeswoman Maria Zakharova said the package would only aggravate the bloc's problems.
Zakharova said previous sanctions packages had led to the energy crisis and high inflation in Europe, pushing European companies to make plans to relocate production facilities and placing the continent at risk of deindustrialization.
"The painful consequences of the EU's anti-Russia policy will increase, and the US will 'assist' in that, acting as the main beneficiary of the security crisis on the European continent and of the rupture of trade and economic ties between the EU and Russia," she said in a statement.
As all these development trends progress, it is clearly visible that more uncertainties lie ahead for the European economy in 2023.