The European Commission has improved the forecast of economic growth in the EU for 2023

The European Commission (EC) in its winter interim review improved the forecast of economic growth of the EU and the eurozone for 2023. It is stated on the institution’s website.

The EU economy entered 2023 in better shape than expected last autumn and avoided a contraction in the fourth quarter of 2022. Currently, the growth rate based on the results of 2022 is estimated at 3.5% both in the EU and in the Eurozone.

“Favourable developments since the Autumn Forecast have improved the growth outlook for this year. Continued diversification of supply sources and a sharp drop in consumption have left gas storage levels above the seasonal average of past years, and wholesale gas prices have fallen well below pre-war levels,” the review said.

In addition, the labor market in the EU continued to develop, and the unemployment rate by the end of 2022 remained at an all-time low of 6.1%. January surveys also suggest that economic activity should not contract in the first quarter of 2023.

However, consumers and businesses still suffer from high energy prices, and core inflation continued to rise in January 2023, which worsened the purchasing power of households. As inflationary pressures persist, Europe will continue tight monetary policy, which will dampen business activity and discourage investment.

The European Commission has increased the economic growth forecast for 2023 from 0.3% to 0.8% in the EU and to 0.9% in the Eurozone. Expectations for 2024 remained unchanged – growth of 1.6% and 1.5% for the EU and the Eurozone, respectively.

General inflation in the EU should slow down from 9.2% in 2022 to 6.4% in 2023 and to 2.8% in 2024. It is predicted that in the Eurozone it will slow down from 8.4% in 2022 to 5.6% in 2023 and to 2.5% in 2024.

Although the uncertainty of the forecasts remains high, risks to economic growth are generally balanced, the review says. In particular, external demand may be stronger after the opening of China’s economy, but this may contribute to global inflation.

“The energy crisis and tightening of monetary policy did not lead to a recession in the eurozone countries, the pessimistic estimates were exaggerated. The pace of economic development has, in fact, remained the same as we have seen since and before COVID. Construction is lagging behind, but volumes in the industry are secured in advance by the existing order book, and negative sentiment is associated with a lack of new orders and fears that higher interest rates will delay new construction projects. But it will have an impact only in the second half of 2023, when other industries should recover. This may mean that the subsidence in construction will not be significant,” noted Andriy Tarasenko, chief analyst at GMK Center.

At the same time, according to the analytical center Bruegel, Reuters informs, the costs of European governments to protect households and companies from the energy crisis have increased to almost €800 billion. In particular, since September 2021, EU countries have allocated €681 billion for these goals, the UK – €103 billion.

The total aid amount of €792 billion increased from €706 billion in Bruegel’s last estimate in November 2022, as countries are still feeling the effects of the 2022 shutdown of most Russian gas supplies to Europe. The think tank notes that governments have focused most of their support on non-targeted measures to curb the rise in retail prices for consumers.

As GMK Center reported earlier, in the fourth quarter of 2022, the GDP in the Eurozone increased by 0.1% compared to the previous quarter. Annual growth was 1.9%. Previously, analysts had expected a 0.1% quarter-on-quarter fall in Eurozone GDP based on the results of the fourth quarter and growth of 1.8% year-on-year.