Economic output in the euro area has recently returned to its pre-pandemic level. The surge in infections since early 2022 had only little overall effect on mobility, and leading indicators like business and consumer sentiment signaled high confidence up to February. Thus, strong growth and a complete post-pandemic recovery were expected in the course of the year. However, the effects of the war in Ukraine are hampering the economy, especially in the first half of 2022. Economic activity is dampened particularly via the channel of high energy prices, by which domestic purchasing power is drained. Economic activity is also likely to be adversely affected by disruptions in supply chains, reduced trade activity and a sharp increase in uncertainty. For the second half of the year and beyond, we expect a stronger economy again. Overall, GDP is expected to increase by 2.8 percent in 2022 and 3.1 percent in 2023. Consumer prices are expected to rise by 5.2 percent in the current year, more than at any time since the monetary union came into existence. For 2023, inflation is expected at 2.8 percent, once again above target.