However, these policy actions must remain focused on the specific groups hardest hit by the crisis and must be of limited duration. Against this backdrop, according to the ECB September projection exercise, the euro area economy is expected to grow by 3.1% in 2022, before slowing down markedly in 2023 to 0.9% - from the 2.1% forecast in June. Although a recession in the euro area is not currently envisaged as the baseline scenario, it is becoming increasingly likely. Indeed, uncertainty is high and both inflation and GDP developments will depend heavily on in the severity of any energy supply disruptions and the winter conditions, which could lead to higher energy prices and more severe production cuts. With this in mind, the ECB has also prepared a downside scenario relating to the war in Ukraine and energy supply cuts. Under this adverse scenario, GDP would contract by 0.9% in 2023. This downside scenario entails a complete cut-off of Russian gas and oil flows to Europe. In addition, it assumes fewer possibilities for energy supply substitution and unusually cold winter weather triggering higher energy demand. As a result, commodity prices and uncertainty would be higher, trade would be weaker and financing conditions would deteriorate further. In this very challenging situation, I would like to highlight one positive aspect of the euro area economy: the labour market remains robust. According to the latest statistics  3  published,5 the euro area seasonally-adjusted unemployment rate was 6.6% in August 2022, well below the 7.5% recorded in August 2021.
As a result, by the first quarter of 2022, inflation in the EU was already at its highest level since the creation of the monetary union. Lastly, in this unstable scenario in which supply and demand had yet to adjust, the outbreak of war in Ukraine fuelled further instability in the inflation outlook and hindered the economic recovery that was starting to take hold in early 2022. Europe is particularly exposed to the economic repercussions of the Russian invasion of Ukraine. First, the continent has close commercial ties with Ukraine, a supplier of primary goods such as grain, sunflower oil or corn. These products are widely used in the European agriculture, farming and food industries. Second, and most importantly, Russia continues to play a major role as an exporter of energy products to Europe (mainly oil and gas), and remains of key importance for some European countries. Russia is the euro area’s main supplier of natural gas and oil: in 2019, 36% of all of the natural gas consumed in the euro area came from Russia, as did 22% of all of the oil consumed. As a result of the war, the European Union has taken measures to sanction certain activities that could be used to finance Russia and, by extension, the invasion. In turn, Russia has restricted supplies of gas to Europe, and these are hard to replace in the short term. All these elements make up a cocktail that is hard to digest.