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The EU economy will grow less than previously forecast this year, the European Commission has said, as it unveiled fresh downgrades to its gross domestic product expectations owing to high inflation and sluggish business activity weighing on the bloc’s markets.
Finding ways to kick-start the EU’s moribund economy and falling global competitiveness has become the commission’s most pressing task, as growth remains tepid despite a €800bn stimulus programme rolled out across the bloc.
Both the EU and the eurozone would grow 0.6 per cent in 2023, the commission said on Wednesday, 0.2 percentage points lower than expected in its September forecast, and the second consecutive cut this year.
Stubbornly high inflation, triggered first by a reopening of the economy after the Covid-19 pandemic and then the energy shock following Russia’s full-scale invasion of Ukraine, along with a steep increase in interest rates and a slowdown in global trade, have hamstrung European output in the past year, leaving it trailing further behind the US.
“We are approaching the end of a challenging year for the EU economy, in which growth has slowed down more than expected,” said economy commissioner Paolo Gentiloni as he unveiled the forecasts.
The EU economy would grow 1.3 per cent in 2024, the commission forecast, down 0.1 percentage point less than previously expected. The eurozone’s economy is expected to expand just 1.2 per cent next year, a downward revision from 1.3 per cent.
The chances of a swift rebound in growth seem slim to economists, who warned the recent hefty increase in interest rates was yet to work its way fully to consumers and businesses as many of them locked in low rates with longer-term loans.
“The commission’s forecasts still fall into the category ‘unbeatable optimism’,” said Carsten Brzeski, an economist at Dutch bank ING. He said eurozone growth was expected to reach just 0.2 per cent next year when “we will still see the negative impact from higher rates on growth”.
The commission forecasts that 10 EU countries — including Germany — will see their economies shrink this year. All except Sweden are expected to grow in 2024.
The region’s gloomy outlook was underlined by separate data published on Wednesday showing exports from the eurozone and industrial production in the bloc have both continued to fall.
Eurostat, the EU’s statistics arm, said eurozone exports were down 9.3 per cent in September from a year ago and goods shipments within the bloc had fallen 15.5 per cent in the same period. Meanwhile, eurozone industrial production was down 6.9 per cent in September from a year earlier after a 1.1 per cent monthly decline.
Economists said the data showed there was unlikely to be a quick rebound. “Everywhere we look in the private sector, we see weakness at the moment,” said Claus Vistesen, an economist at consultants Pantheon Macroeconomics. “The main downside surprise seems to be still-soft consumers’ spending growth even as inflation is falling, though this varies across countries.”
Mario Draghi, the former Italian prime minister and president of the European Central Bank, told the Financial Times last week: “It is almost sure [that Europe is] going to have a recession by the year-end.”
The commission said inflation remained “on a downward trend” and would fall from 6.5 per cent this year to 3.5 per cent in 2024.
“Uncertainty and downside risks to the economic outlook have increased in recent months amid Russia’s protracted war of aggression against Ukraine and the conflict in the Middle East,” the commission said in a statement.
“So far, the latter’s impact on energy markets has been contained, but there is a risk of disruptions to energy supplies that could potentially have a significant impact on energy prices, global output and the overall price level. Economic developments in the EU’s major trading partners, especially China, could also pose risks,” it added.