The European Commission has revised down its growth projections for the Eurozone in its Summer 2023 interim forecast.[0] The growth outlook for 2023 was cut from 1.1% to 0.8%, while the projection for 2024 was trimmed from 1.6% to 1.3%. Inflation expectations for 2023 were adjusted downward from 5.8% to 5.6%, but the forecast for 2024 saw a minor uptick from 2.8% to 2.9%.
The EU economy continues to grow, albeit with reduced momentum, according to the forecast.[1] The EU economy is now projected to grow by 0.8% in 2023, down from the 1% projected in the Spring Forecast, and by 1.4% in 2024, down from 1.7%. The growth outlook for the Eurozone was also revised down to 0.8% in 2023 (from 1.1%) and 1.3% in 2024 (from 1.6%).
On the inflation front, the forecast predicts a continued decline.[0] The Harmonised Index of Consumer Prices (HICP) inflation for the EU is now projected to reach 6.5% in 2023 (compared to 6.7% in the spring) and 3.2% in 2024 (compared to 3.1%).[2] In the Eurozone, inflation is forecast to be 5.6% in 2023 (compared to 5.8%) and 2.9% in 2024 (compared to 2.8%).
The report highlights that economic activity in the EU was subdued in the first half of 2023 due to high consumer prices and weakening domestic demand.[3] Despite declining energy prices and a strong labor market, the impact of monetary policy tightening is starting to be felt in the economy.[1] Survey indicators also suggest a slowdown in economic activity in the summer and the months ahead, with weakness in industry and fading momentum in services.[4]
However, there is some optimism for a mild rebound in growth next year. This is driven by a resilient labor market, low unemployment rates, and diminishing price pressures.[1] The economic trajectory remains uncertain, and risks and uncertainties from challenges both internal and external could impact the outlook.[0]
The EU's executive vice president for an economy that works for people, Valdis Dombrovskis, acknowledges the heavy cost of high inflation but notes signs of it abating.[0] He anticipates a modest rebound in growth in the coming year, supported by a strong labor market, low unemployment, and easing price pressures. However, he emphasizes the need for vigilant risk monitoring.[0]
The European commissioner for economy, Paolo Gentiloni, highlights the challenges facing the EU economy, including the impact of restrictive monetary policy, geopolitical tensions, and climate risks. He emphasizes the importance of concluding an agreement on the reform of fiscal rules by the end of the year.[3]
Overall, the forecast paints a picture of a Eurozone and EU economy experiencing reduced growth momentum and facing uncertainties and risks.[1] While there are some positive factors, such as a strong labor market and easing inflation, challenges in domestic demand and external factors could hinder economic recovery. Vigilance and proactive measures are needed to navigate the uncertain economic landscape.
0. “EU downgrades Eurozone growth forecasts, Germany in contraction this year” Action Forex, 11 Sep. 2023, https://www.actionforex.com/live-comments/518151-eu-downgrades-eurozone-growth-forecasts-germany-in-contraction-this-year/
1. “Summer 2023 Economic Forecast: Easing growth momentum amid declining inflation and robust labour market | EEAS” EEAS, 11 Sep. 2023, https://www.eeas.europa.eu/delegations/montenegro/summer-2023-economic-forecast-easing-growth-momentum-amid-declining-inflation-and-robust-labour_en?s=225
2. “Summer 2023 Economic Forecast: Easing growth momentum amid declining inflation and robust labour market” Forex Factory, 11 Sep. 2023, https://www.forexfactory.com/news/1240683-summer-2023-economic-forecast-easing-growth-momentum-amid
3. “EU economy to grow slower than expected: Commission” China Daily, 12 Sep. 2023, https://global.chinadaily.com.cn/a/202309/12/WS64ffb25da310d2dce4bb5382.html
4. “Eurozone To Undergo Slower Growth On Subdued Domestic Demand, Tight Policy” RTTNews, 11 Sep. 2023, https://www.rttnews.com/3389444/eurozone-to-undergo-slower-growth-on-subdued-domestic-demand-tight-policy.aspx
