The European Commission once again revised downwards, on Wednesday 15 November, its growth forecasts for 2023 for both the euro area and the European Union, to 0.6% of GDP instead of 0.8% (see EUROPE 13247/1). But it still expects a rebound in 2024, which will continue into 2025, to 1.3% and 1.6% of GDP respectively in the euro area, and 1.3% and 1.7% respectively in the EU over these two years.
In 2023, the economy “lost momentum”, noted the European Commissioner for Economic Affairs, Paolo Gentiloni, describing it as “challenging year”. For 2024, it is expected to “rebound mildly”, mainly as a result of an acceleration in private consumption and investment, notably via the post-Covid-19 national stimulus plans, he added. Based on the trends in gas prices on the markets, he said that the war between Israel and Hamas in the Middle East had not so far changed the macroeconomic context.
As always, GDP growth will be uneven from one Member State to another. In 2023, ten countries are expected to face an economic recession: Estonia (-2.6% of GDP), Ireland (-0.9%), Hungary (-0.7%), Luxembourg (-0.6%), Austria and Sweden (-0.5%), Lithuania and the Czech Republic (-0.4%), Germany (-0.3%) and Latvia (-0.2%). The countries doing best are Malta (4.0% of GDP), Croatia (2.6%), Greece and Spain (2.4%). GDP growth is expected to be moderate in Italy (0.7%) and France (1.0%).
In 2024, only Sweden will be subject to an economic recession (-0.2% of GDP). Growth is still expected to be strongest in Malta (4.0% of GDP), followed by Romania (3.1%) and Ireland (3.0%), while it will be weakest in Germany and Finland (0.8% of GDP) and Italy (0.9%). Wealth creation is estimated at 1.2% of GDP in France and 1.7% in Spain.
Despite the economic slowdown, the labour market will remain at a high level in 2023, with unemployment remaining close to its lowest level in September, at 6%. In 2024, the proportion of the working population without a job should remain at this level, according to the Commission.
Inflation. In terms of inflation, the downward trajectory continues, from a peak of 10.6% in October 2022 in the euro area to an estimated 2.9% a year later. Initially concentrated on energy prices, the fall in inflation has spread to other economic sectors. On average over a year, the rise in prices should be reduced from 5.6% in 2023, 3.2% in 2024 and 2.2% in 2025 in the euro area.
The gradual phase-out of emergency fiscal measures linked to the Covid-19 pandemic in 2020 and the energy crisis in 2022 will help to offset the pressure on public deficits caused by a less favourable economic environment and higher debt servicing costs due to rising interest rates.
As a result, the EU institution believes, the average public deficit should gradually decline. It is expected to rise from -3.6% of GDP in 2022 and -3.2% in 2023 to -2.8% in 2024 in the euro area, and from -3.3% of GDP in 2023 and -3.2% in 2024 to -2.8% in 2025 in the EU.
There are also significant differences between EU countries. In 2023, the deficit will be most acute in Romania (-6.3% of GDP), Hungary and Poland (-5.8%) and Slovakia (-5.7%), while budget surpluses are expected in Denmark (2.6%), Cyprus (2.3%), Ireland (0.9%) and Portugal (0.8%). It will be -5.3% in Italy, -4.8% in France, -4.1% in Spain and -2.2% in Germany.
The average public debt/GDP ratio is also gradually declining, as follows: 92.5% of GDP in 2022, 90.4% in 2023 and 89.7% in 2024 for the euro area, and 84.8% in 2022, 83.1% in 2023 and 82.7% in 2024 for the EU as a whole.
Here again, there are significant differences between Member States. In 2023, Greece (160.9% of GDP), Italy (139.8%), France (109.6%), Spain (107.5%), Belgium (106.3%) and Portugal (103.4%) will remain the most indebted countries.
In drawing up the draft budgets for 2024, we have asked the most indebted countries to take account of our recommendation to respect a maximum threshold of net primary public expenditure, said Mr Gentiloni. The Commission will present its opinions on the draft budgets on Tuesday 21 November in Strasbourg.
In 2023, the EU countries with the lowest debt are: Bulgaria (23.5% of GDP), Luxembourg (26.8%), Denmark (30.3%), Sweden (30.4%), Lithuania (37.3%) and Latvia (41.7%).
To see the Commission’s autumn economic forecasts: https://aeur.eu/f/9k3 (Original version in French by Mathieu Bion)