European economic forecast: summer-2023

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The European Commission published this September summer-23 economic forecast: main outcome is that the EU-27 economy continues to grow, although with reduced momentum, down to 0.8% in 2023, from 1% projected in the spring forecast and to 1.4% in 2024, from 1.7%. The forecast also “corrects” growth in the euro area to 0.8% in 2023 (from a previous1.1%), and to 1.3% in 2024, from previous 1.6%.

The summer-23 economic forecast provides an update of the spring-23 forecast, which was presented in May 2023. Present interim forecast contains GDP and inflation projections for the six largest EU member state economies (Germany, France, Italy, Holland, Spain and Poland), the euro area and the EU as a whole. The latest economic developments for 21 other member states are addressed in the overall analysis and are factored into the calculation of the EU and euro area aggregates.
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    The Commission publishes each year two comprehensive forecasts (in spring and in autumn) and two interim forecasts (in winter and in summer); the 2023 edition of the summer forecast is being presented later than on previous occasions to enable it to incorporate several key data releases in July and August.
The Commission’s next forecast will be autumn-23, which is scheduled to be published in November 2023.

Risks and challenges
Energy prices are set to continue declining for the remainder of 2023, but at a slowing pace. They are projected to increase slightly again in 2024, driven by higher oil prices. Inflation in services has so far been more persistent than previously expected, but it is set to continue moderating as demand softens under the impact of monetary policy tightening and a fading post-COVID boost. The prices of food and non-energy industrial goods will continue contributing to easing inflation over the forecast horizon, also reflecting lower input prices and normalising supply chains.
One of the main economic parameter, the inflation is expected to continue to decline: inflation in the harmonised index of consumer prices in the EU (HICP) is now projected to be about 6.5% in 2023 (compared to 6.7% in the spring) and 3.2% in 2024 (compared to 3.1%). In the euro area, inflation is forecast to be 5.6% in 2023 (compared to 5.8%) and 2.9% in 2024 (compared to 2.8%). Weakness in domestic demand, in particular consumption, coped with still increasing consumer prices for most goods and services are most damaging factors, despite declining energy prices and an exceptionally strong labour market, which has seen record low unemployment rates, continued expansion of employment and rising wages.

    Commission forecasts that overall, the weaker growth momentum in the EU is expected to extend to 2024; the impact of tight monetary policy is set to continue restraining economic activity. However, a mild rebound in growth is projected next year, as inflation keeps easing, the labour market remains robust, and real incomes gradually recover. Russia’s ongoing war of aggression against Ukraine and wider geopolitical tensions continue to pose risks and “remains a source of uncertainty”, the forecast adds.
Furthermore, monetary tightening may weigh on economic activity more heavily than expected, but could also lead to a faster decline in inflation that would accelerate the restoration of real incomes.

    Citation from the forecast: “The EU avoided a recession last winter – no mean feat given the magnitude of the shocks that we have faced. However, the multiple headwinds facing our economies this year have led to a weaker growth momentum than we projected in the spring”.
Paolo Gentiloni, Commissioner for Economy.



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