The European Commission revised, on Monday 15 May, its economic forecasts for 2023 upwards again, estimating growth of 1.1% of GDP for the euro area and 1.0% for the European Union, compared with 0.9% and 0.8% respectively envisaged last February (see EUROPE 13120/1).
The macroeconomic outlook is “better than expected”, according to the European Commissioner for the Economy, Paolo Gentiloni, for whom a recession has been definitively ruled out. “We should be proud of the fact that the European economy is showing such remarkable resilience” despite the “magnitude of the shocks” it has experienced, he added, such as the energy crisis and very high inflation. He called for “maintaining the momentum of growth” in order to face the risks to the economy that are once again prevailing.
The main downside risk comes from inflation, which is declining but remains abnormally high, falling from 8.4% in 2022 to 5.8% in 2023 and 2.8% in 2024. Most worrying is core inflation (excluding food and energy prices), which reached a record high of 7.5% in March. It is expected to gradually decline as the ECB’s tightening monetary policy is transmitted to the economy and financing conditions become more expensive, but it is likely to remain high over the medium term.
In 2024, economic growth will strengthen to 1.6% in the euro area and 1.7% in the EU, according to the Commission’s forecast. Healthy employment and a catching up of wages, cushioned by sufficient margins accumulated by companies, will push up private consumption. And the European Recovery Plan will support continued public investment despite the tightening of monetary policy.
In terms of growth, there will be significant differences at national level. Growth in Germany will have to stagnate almost this year (0.2% of GDP) in order to take off again the following year (1.4%). The same forecast for France in 2024, where growth will be slightly firmer in 2023 (0.7% of GDP). In Italy, growth is expected to be moderate in both years: 1.2% of GDP in 2023 and 1.1% in 2024. In Poland, after a slowdown this year (0.7% of GDP), growth should be strong next year (2.7%). Finally, Spain should still enjoy growth well above the European average, at 1.9% of GDP in 2023 and 2.0% in 2024.
For the first time, the Commission is issuing economic forecasts for the candidate countries. In Ukraine, subject to the precautions related to the uncertainty linked to the duration of the Russian military aggression, after the shock of the outbreak of the war which led to a fall in Ukrainian GDP of around 30% in 2022, the Ukrainian economy should stabilise (0.6% of GDP) in 2023 before rising again in 2024 (4.0%).
Asked about the relevance of economic forecasts focusing on wealth production at a time when a conference is being held in the European Parliament since Monday calling for a move beyond GDP figures to assess the health of a national economy, Mr Gentiloni acknowledged the need to take greater account of social and sustainable development issues.
“More needs to be done in this area”, he admitted.
A progressive consolidation of public finances
As regards the public deficit, growth and the gradual lifting of emergency fiscal-budgetary measures linked to the Covid-19 pandemic and the energy crisis favour the consolidation of public finances.
In the EU, the average deficit to GDP is thus expected to take the following path: 3.4% in 2022, 3.1% in 2023 and 2.4% in 2024. In the euro area, this trajectory will be as follows: 3.6% in 2022, 3.2% in 2023 and 2.4% in 2024.
According to Mr Gentiloni, the number of Member States with excessive deficits (above 3% of GDP) under EU fiscal rules will be “fourteen in 2023 and ten in 2024” with unchanged fiscal policies. This affects Bulgaria and Slovakia (-4.8% of GDP), Belgium (-4.7%), Malta (-4.5%), Romania and Hungary (-4.4%), France (-4.3%), Poland and Italy (-3.7%) and Spain (-3.3%) in 2024.
These data should be kept in mind as negotiations have started on the reform of the Stability and Growth Pact. In particular, the Commission has proposed that any Member State whose deficit exceeds 3% of GDP, not only those subject to a formal excessive deficit procedure, should consolidate its public finances by 0.5% of GDP per year (see EUROPE 13172/6). This measure could be applied on the basis of data observed in 2024.
Finally, the debt/GDP ratio will continue its downward trajectory. Between 2023 and 2024, it is expected to decrease on average from 85.3 to 83.4% in the EU and from 93.2 to 90.8% in the euro area.
Again, there are significant national differences. The most indebted countries in 2023 will be Greece (160.2%), Italy (140.4%), Spain (110.6%), France (109.6%), Portugal (106.2%) and Belgium (106.0%). In contrast, government debt to GDP will be lowest in Estonia (19.5%), Bulgaria (25.0%), Luxembourg (25.9%), Denmark (30.1%), Sweden (31.4%), Lithuania (37.1%) and Romania (45.6%).
To see the Commission’s Spring 2023 Economic Forecast: https://aeur.eu/f/6vl (Original version in French by Mathieu Bion)