After stronger-than-expected growth in the first half of this year, the European Commission expects a two-quarter technical recession in late 2022 and early 2023 before a moderate recovery from next spring.
“We have some difficult months ahead of us”, said the EU Commissioner for Economy Paolo Gentiloni on Friday 11 November, presenting the EU institution’s autumn economic forecast.
The Commission expects GDP to rise by 3.3% in the EU and 3.2% in the euro area, thanks to the growth momentum built up in 2021, when the health measures against the Covid-19 pandemic were gradually lifted.
But the situation is rapidly deteriorating. According to Mr Gentiloni, “a majority” of Member States will face a technical recession, with some already in this situation since the third quarter.
Thus, in 2023, growth is expected to be sluggish, at 0.3% for both the euro area and the EU. The recovery is expected to be slightly stronger the following year, at 1.5% in the euro area and 1.6% in the EU.
All Member States will experience this situation, albeit to varying degrees. In 2023, Germany and Sweden are expected to experience a recession (-0.6% decline in GDP), as is Latvia (-0.3%), while Ireland (3.2%), Malta (2.8%) and Romania are expected to experience the highest growth. In France, wealth creation is expected to be weak (0.4%) as well as in Italy (0.3%), and a little more sustained in Spain (1.0%).
Bearish risks predominate, including the repercussions of Russian military aggression in Ukraine, the reduction - or even cessation - of Russian gas deliveries which would cause difficulties for the winter of 2023-24, as well as the slowdown in consumption.
Some encouraging signals are nevertheless noted, such as the excellent performance of employment and the maintenance of productive investment, a guarantee of further growth.
This overview shows that “our decision to extend the general escape clause (of the Stability and Growth Pact) to 2023 was warranted”, said the Commissioner, advocating for a quick agreement on the revision of the European economic governance framework (see EUROPE 13060/1). On the reduction of the EU’s dependence on Russian hydrocarbons, he reiterated his position in favour of introducing European mechanisms that would increase the striking power of the ‘REPowerEU’ strategy, including through joint indebtedness.
Inflation. “Inflation has continued to rise faster than expected, but we believe the peak is near, most likely at the end of this year”, Mr Gentiloni said.
Thus, according to the EU institution, headline inflation is projected to reach 8.5% in the euro area and 9.3% in the EU, before decelerating moderately next year to 6.1% in the euro area and 7.0% in the EU, and then steadily to 2.6% in the euro area and 3.0% in the EU by the end of 2024.
As regards the public deficit, between 2022 and 2023, the average level observed will decrease from -5.1 to -3.5% at the level of the nineteen euro members, and from -4.6 to -3.4% at the EU level. Again, there are significant differences between Member States. In 2022, the deficit will be the highest in Malta (-7.8%), Greece (-7.5%) and Italy (-7.2%) while Denmark (+3.6%) and Luxembourg (+0.8%) will have a surplus.
As for public debt, between 2021 and 2022, the average ratio is expected to fall from 97.1 to 93.6% of GDP in the euro area and from 89.4 to 86.0%. Over the same period, the most indebted countries are expected to experience the following trajectory: Greece (decrease from 194.5 to 171.1%), Italy (from 150.3 to 144.6%), Portugal (from 125.5 to 115.9%), Spain (from 118.3 to 114.0%), France (from 112.8 to 111.7%), Belgium (from 109.2 to 106.2%).
In contrast, the countries with the lowest debt in 2023 are expected to be Bulgaria (22.5% of GDP), Luxembourg (24.3%) and Sweden (32.1%).
See the Commission’s autumn economic forecasts: https://aeur.eu/f/41w (Original version in French by Mathieu Bion)