EC has worsened the forecast for the growth of the Eurozone economy in 2023

The European Commission (EC) has downgraded its growth forecast for the eurozone economy for 2023 and 2024 as inflation remains too high, consumer spending declines and Germany, the region’s largest economy, slips into recession. It is stated in the review of the institution.

It is expected that the GDP of the Eurozone will grow by 0.8% in 2023 and by 1.3% in 2024. These figures are lower than the EC’s May forecasts of 1.1% and 1.6%, respectively. The European Commission also forecasts consumer inflation in the eurozone at the level of 5.6% in 2023 and 2.9% in 2024. This is well above the European Central Bank’s target of 2.0%.

The forecast for the growth of the EU economy for the current year has deteriorated from 1% to 0.8%, for the next year – from 1.7% to 1.4%.

According to the review, Germany’s economy will decreased by 0.4% in 2023 against the May growth forecast of 0.2%, France’s GDP in this period will grow by 1.0% (previously expected by 0.7%), Italy’s – by 0.9% (vs. 1.2% forecast in May).

Energy prices until the end of 2023, the review says, will continue to decrease, but more slowly. In 2024, they will increase slightly again due to a possible increase in oil prices.

Prospects that cause risks and uncertainty for the economy are called the ongoing war of the Russian Federation against Ukraine and broader geopolitical tensions.

“Furthermore, monetary policy tightening may weigh on economic activity more strongly than expected, but may also lead to a faster decline in inflation, accelerating the recovery of real incomes. On the contrary, price pressure may turn out to be more stable,» the EC notes.

According to Paolo Gentiloni, Commissioner for the Economy, the multiple headwinds facing Europe’s economies this year have led to weaker growth than forecast in the spring.

«Effective implementation of national recovery and resilience plans remains a key priority. Prudent, investment-friendly fiscal policies must be pursued in tandem with ongoing efforts by our central banks to curb inflation. Finally, we must work hard to reach an agreement on reforming our fiscal rules by the end of the year,» he said.

The economic downturn in Germany can have a strong impact on the European steel industry and its economic conditions, noted the head of Duferco Antonio Gozzi in an interview for Kallanish. He recalled that last year Italian exports to Germany reached €80 billion, which is almost 20% of the country’s total exports. In addition, some Italian provinces – Brescia and Bergamo – are strongly connected to the German market.

According to Gozzi, Germany’s economy used to rest on three pillars: labor market reforms that released the country’s industrial potential, cheap energy from the Russian Federation, and powerful exports of auto industry products to China. However, several weaknesses in German industry currently threaten its future growth. These include an aging population, labor shortages, high energy costs, overreach in the fight against climate change, which led to the closure of nuclear power plants, and a lack of public investment in infrastructure.

As GMK Center reported earlier, Eurozone GDP in April-June 2023 increased by 0.3% compared to January-March 2023. The economy of the European Union in April-June 2023 did not change compared to the first quarter of 2023.