On Thursday 15 February, the European Commission revised its economic growth forecasts for the euro area downwards again, to 0.5% of GDP for 2023 and 0.8% of GDP for 2024, compared with 0.6% and 1.3% respectively in its previous forecasts, issued last November (see EUROPE 13293/2). At EU level, growth is expected to be 0.5% in 2023 and 0.9% in 2024. Nevertheless, the EU institution is still expecting a “rebound” this year, albeit delayed.
After a post-Covid-19 pandemic period of strong growth, “the EU economy entered the year on a weaker footing than expected”, said the European Commissioner for Economic Affairs, Paolo Gentiloni, reporting a “muted” outlook for the first quarter of 2024, due in particular to the weakness of the German economy.
Nevertheless, the Commissioner felt that the macroeconomic conditions for a rebound remained in place. He cited the faster than expected fall in inflation, controlled energy prices, credit conditions that should gradually ease, the maintenance of a dynamic labour market and the stimulation of public investment via the NextGenerationEU recovery plan. However, downside risks continue to predominate, notably due to the repercussions on the economy of geopolitical tensions (Russian aggression in Ukraine, the Israel/Hamas war).
Asked about the need for euro area countries to revise the restrictive budgetary stance for 2024 (see EUROPE 13328/25), Mr Gentiloni simply recalled that the Eurogroup also recommends that national budgetary policies remain “agile” so as to respond to changes in the economic situation.
In terms of growth, there are still major differences between Member States. In 2023, 11 countries experienced a recession: Estonia (-3.5% of GDP), Ireland (-1.9%), Luxembourg and Hungary (both -0.8%), Austria (-0.7%), Latvia (-0.6%), Finland and the Czech Republic (both -0.4%), Germany and Lithuania (both -0.3%) and Sweden (-0.1%). The growth drivers were Malta (6%), Croatia (2.6%), Spain (2.5%), Cyprus (2.4%) and Greece (2.2%).
By 2024, all Member States should return to positive economic growth. The performance of Malta (4.6% of GDP), Cyprus (2.8%), Croatia (2.6%), Greece and Slovakia (2.3% each) will remain strong. By contrast, Sweden (0.2%), Germany (0.3%) and the Netherlands (0.4%) should narrowly escape recession. And wealth creation will be modest in Italy (0.7%) and France (0.9%), but still buoyant in Spain (1.7%).
Asked about the situation in Germany, Mr Gentiloni referred to “structural challenges” to be overcome in the energy sector and in terms of trade exposure to China. Earlier, in the European Parliament, ECB President Christine Lagarde spoke of the need for Berlin to review its economic model in order to increase its energy independence (see other news).
Inflation. In terms of inflation, the Commission believes that it fell faster than expected last autumn, mainly due to the continued fall in energy prices but also to the economic slowdown. For the euro area as a whole, price rises should fall from 5.4% in 2023 to 2.7% in 2024 and 2.2% in 2025.
Finally, Mr Gentiloni welcomed the fact that the European labour market is still in good shape despite the current economic slowdown, with employment growth in 2023 at 1.3% in the EU and 1.4% in the euro area.
The Commissioner also confirmed that the Commission will propose “at the end of June” the opening of excessive deficit procedures for Member States whose deficit exceeds 3% of national GDP, on the basis of the final Eurostat figures. This will apply to between 10 and 12 countries.
See the Commission’s winter economic forecasts: https://aeur.eu/f/avg (Original version in French by Mathieu Bion)