On Monday 13 February, the European Commission raised its growth forecasts for 2023, on the back of a better-than-expected end to 2022. The euro area and the European Union should therefore avoid a technical contraction at the beginning of 2023, with their GDP growing by 0.9 and 0.8% respectively over the whole of the current year and by 1.5 and 1.6% in 2024. In November, the EU institution had been expecting a weak growth of 0.3% for both the euro area and the EU27 (see EUROPE 13062/28).
“The European economy has entered 2023 on a healthier footing than expected, and looks set to escape recession”, said EU Economy Commissioner Paolo Gentiloni, presenting the Commission’s winter economic forecast. He said that in 2022, GDP growth was expected to reach 3.5% in the euro area and the EU, noting that this was higher than growth in the US and China. According to him, the current situation contradicts the talk of “stagflation” by some experts last autumn.
Citing a rebalancing of risks to the European economy, the Commissioner cited falling energy prices on wholesale markets combined with falling consumption as a bullish factor. But the uncertainty linked to geopolitical tensions and its repercussions in the EU remain high and weigh on confidence indicators.
In 2023, growth forecasts differ between Member States. With an expected GDP increase of 4.9%, Ireland will continue to show strong growth, followed by Malta (3.1%) and Romania (2.5%). Sweden is expected to be the only EU country in economic recession this year (-0.8%), while growth will be sluggish in Estonia and Latvia (0.1%), as well as in Germany and Finland (0.2%). In France (0.6%) and Italy (0.8%), GDP growth will be moderate, and it will be more sustained in Spain (1.4%).
On the German economy, Mr Gentiloni noted that in the autumn the Commission was forecasting a 0.6% contraction in GDP. “This is a significant turnaround driven by abating energy prices, gradual adjustment of supply chains and policy support to households and firms”, he said.
Inflation. Regarding inflation, the Commissioner described a downward trajectory after the peak at the end of last year: 9.2% in 2022, 6.4% in 2023 and 2.8% in 2024.
According to Mr Gentiloni, the evolution of energy prices, which has yet to be reflected in retail prices, as well as the normalisation of the ECB’s monetary policy (see EUROPE 13113/4) explain such a trajectory. He noted, however, that while year-on-year inflation is falling, core inflation (excluding energy and unprocessed food prices) is still rising, explaining its spread to the economy as a whole.
On the labour market, low unemployment (6.1% in the EU and 6.6% in the euro area) remains the main source of satisfaction since the outbreak of the Covid-19 pandemic in spring 2020. Mr Gentiloni nevertheless spoke of a “tense” situation on the labour market for 2023 and 2024. He highlighted that wage growth remained below inflation in 2022, resulting in “a loss of purchasing power” for workers.
More information on the winter economic forecast: https://aeur.eu/f/5aw (Original version in French by Mathieu Bion)