Status: 11/11/2022 2:23 p.m
In view of the consequences of the Ukraine war, the EU Commission assumes only minimal economic growth in the euro zone for 2023. At the end of the year, she even expects a recession.
Because of the energy crisis resulting from the Ukraine war, the EU Commission is anticipating hardly any economic growth in the coming year – albeit with lower inflation than last time. The gross domestic product (GDP) in the euro area is only likely to increase by 0.3 percent in 2023, the Brussels authorities announced today in their autumn economic forecast. In the summer, the EU had estimated 1.4 percent.
For the final quarter of 2022, the Commission even assumes that the euro zone and most of its members will slip into recession. GDP is likely to continue shrinking in early 2023. An economy is in what is known as a technical recession when GDP falls for two consecutive quarters.
Will inflation peak at the end of 2022?
“The economy in Europe is at a turning point,” said EU Economic Commissioner Paolo Gentiloni. The reason for this is the great uncertainty, high energy prices, loss of purchasing power in private households, the weaker global environment and stricter financing conditions. However, due to surprisingly good growth in the first half of 2022, the economy is likely to grow by 3.2 percent for the year as a whole – and thus more than expected in the summer of 2.6 percent.
The inflation rate, however, is likely to rise more sharply than already assumed. The Commission now expects inflation of 8.5 percent for 2022. “We believe inflation is near its peak,” Gentiloni said. This can probably be expected by the end of this year.
In October, inflation in the monetary union had climbed to a record 10.7 percent. That’s more than five times the European Central Bank’s (ECB) inflation target of 2 percent. For 2023, the Commission is assuming 6.1 percent inflation, which is likely to drop significantly to 2.6 percent in 2024.
Germany brings up the rear in the growth forecast
Germany carries the red lantern in the EU Commission’s economic forecast. According to their estimates, the German economy will shrink more than any other euro country by 0.6 percent. Otherwise, economic power will only fall in Latvia in the coming year – but only by 0.3 percent.
This means that the EU Commission is significantly more skeptical than the federal government and the economists, who expect a minus of 0.4 percent and 0.2 percent respectively in this country. According to the Brussels authorities, the German economy is likely to grow by 1.4 percent in 2024. A GDP plus of 1.6 percent is assumed for the current year, which is slightly more than in the summer. Meanwhile, the EU again believes Ireland to be capable of the greatest GDP growth, where growth is likely to be 3.2 percent.
Despite the strong headwind for the European economy, Gentiloni fears little negative impact on the job market: “The job market is still very strong.” The situation is more robust than it has been for decades and is unlikely to change. The eurozone unemployment rate will increase from 6.8 percent this year to 7.2 percent next year, before falling back to 7.0 percent in 2024.