EU Economy Forecast To Avoid Recession After Inflation Peaked In 2022
In the latest winter economic forecast, the European Commission predicted that the EU economy will avoid a recession after inflation reached its peak in October 2022.
This comes after almost one year after Russia launched its war of aggression against Ukraine, with the EU economy managing to enter 2023 on a better footing than projected in autumn.
“The Winter Interim Forecast lifts the growth outlook for this year to 0.8% in the EU and 0.9% in the euro area. Both areas are now set to narrowly avoid the technical recession that was anticipated for the turn of the year,” the EC said in a statement.
“The forecast also slightly lowers the projections for inflation for both 2023 and 2024.”
The Winter 2023 Economic Forecast provides an update of the Autumn 2022 Economic Forecast, which was presented on 11th November 2022, focusing on GDP and inflation developments in all EU member states.
A series of positive developments since the Autumn Forecast has improved the growth outlook for this year.
“Continued diversification of supply sources and a sharp drop in consumption has left gas storage levels above the seasonal average of past years, and wholesale gas prices have fallen well below pre-war levels.”
“In addition, the EU labour market has continued to perform strongly, with the unemployment rate remaining at its all-time low of 6.1% until the end of 2022. Confidence is improving and January surveys suggest that economic activity is also set to avoid a contraction in the first quarter of 2023.”
“Headwinds, however, remain strong. Consumers and businesses continue to face high energy costs and core inflation (headline inflation excluding energy and unprocessed food) was still rising in January, further eroding households’ purchasing power.”
It continued to say that as inflationary pressures persist, monetary tightening is set to continue, weighing on business activity and exerting a drag on future investment.
However, inflation peaked in October after reaching an all-time high of 10.6%, and it is now on the decrease.
“After reaching an all-time high of 10.6% in October, inflation has decreased, with the January flash estimate down to 8.5% in the euro area. The decline was driven mainly by falling energy inflation, while core inflation has not yet peaked.”
Headline inflation is forecast to fall from 9.2% in 2022 to 6.4% in 2023 and to 2.8% in 2024 in the EU.
In the euro area, it is projected to decelerate from 8.4% in 2022 to 5.6% in 2023 and to 2.5% in 2024.
What do you make of these figures?
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