The European economy is facing headwinds due to the war in Ukraine, but should post lower inflation and better-than-expected growth this year, according to the latest forecasts from Brussels released on Monday.
The European Commission announced that it was revising its growth forecast for the euro zone in 2023 upwards to 0.9% (+0.6 points) and estimated that it should “narrowly avoid” a recession this winter.
Same trend for the whole of the EU, whose growth is now announced at 0.8% (+0.5 points).
These figures mark a sharp slowdown compared to the 3.5% growth recorded last year.
Brussels anticipates a rebound in 2024, with 1.5% growth in the 20 countries sharing the single currency and 1.6% in the EU, figures unchanged since the fall.
The European economy has shown “remarkable resilience” and “this year’s results should be better than what was expected last autumn”, underlined the Commissioner for the Economy, Paolo Gentiloni, during a conference Press.
But “better than expected does not mean good,” he immediately added. “Europeans are still facing a difficult period”, with weaker growth and inflation which, although slowing, continues to weigh on purchasing power, he warned.
No question therefore of relaxing the efforts. Mr. Gentiloni invited the Twenty-Seven to maintain their “determination” and their “ambition” in the search for “common responses” in the face of economic challenges.
The EU has opened a debate on easing state aid within the bloc and creating a “sovereignty fund” to support the economy in the face of soaring energy prices and US subsidies or Chinese. A reform of the electricity market is also under study to lower prices.
But these proposals still come up against the divisions of the Member States.
“Exceptional shocks”
For the time being, the European economy is resisting the consequences of the war in Ukraine better than expected. “Despite exceptional shocks”, it avoided a contraction in gross domestic product (GDP) in the last quarter of 2022, the Commission said in a statement.
“Favorable developments since the fall have improved the outlook for this year”, she underlined, citing in particular the fall in wholesale gas prices “well below their pre-war level”.
The European executive has also lowered its inflation forecast for the euro zone in 2023 to 5.6% (-0.5 points) thanks to the lull in energy prices.
Brussels expects a slightly higher figure for the EU as a whole with a rise in consumer prices of 6.4% in 2023, 0.6 points lower than the figure expected so far.
Inflation has fallen for three consecutive months, after reaching an all-time high of 10.6% in October, which “suggests that the peak is now behind us”, the Commission estimates.
However, “headwinds remain strong”, she warned, insisting on high energy prices which continue to penalize households and businesses.
While inflationary pressures remain, monetary policy should continue to become “more restrictive” which should also “weigh on business activity and weigh on investment”.
By country, growth in Germany (0.2%) is announced to be well below the euro zone average in 2023 for the third consecutive year. However, Europe’s leading economy had weathered the historic recession caused by the Covid pandemic much better in 2020.
France (0.6%) would also be below average this year and would do worse than Italy (0.8%) or Spain (1.4%).
Paolo Gentiloni however warned that the uncertainty surrounding these forecasts was “high”: “the main risk is that of geopolitical tensions, that of the evolution of the war” in Ukraine.