New forecasts from the European Commission point to a moderate recovery in the spring.
Brussels
With winter comes the recession. This Friday, the European Commission revised sharply downwards its forecasts for the European economy, beset by energy prices and high levels of inflation. It predicts an entry into recession in the last quarter of the year and which will continue in the first quarter of 2023. “We have difficult months ahead of us”, summarizes the European Commissioner for the Economy, Paolo Gentiloni.
For 2022, the EU executive estimates growth in gross domestic product (GDP) for the euro area at around 3.2%, and 3.3% for the Union as a whole, well above previous forecasts ( 2.7%). The European economy has so far weathered the impact of the war in Ukraine better than expected, after recovering from a historic recession in 2020. Thanks to massive government fiscal policies to help households and businesses. But the economy is now entering a much riskier phase. The reason for the changeover is known: pressure on energy prices, erosion of household purchasing power, uncertainty, and tighter financing conditions. “The shock of the war is taking over,” observes Paolo Gentiloni. Enough to sink the Union, the euro zone and most of the Member States into technical recession, that is to say whose GDP has fallen for two consecutive quarters.
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The forecasts for 2023 have also been drastically revised downwards. GDP growth will remain slightly positive, just holding at 0.3% for countries sharing the single currency (against 1.4% expected so far) and the Union. It is in particular the sharp drop in production across the Rhine that will contribute to dragging the Union into recession this winter. The German economy, historically very dependent on imports of Russian gas, is hit hard by the consequences of the war in Ukraine. It will post the worst performance in the euro zone, with a recession of 0.6% in 2023, before starting again the following year with a level of growth comparable to that of 2022. France (0.4%), thus Italy (0.3%), the Netherlands (0.4%) and Spain (1%) will also experience significant economic slowdowns next year.
However, a recovery is expected in the spring of 2023, “as inflation gradually loosens its grip on the economy”, specifies the European executive. This rebound will however be “moderate, because the negative shock on energy prices will persist”, underlines Paolo Gentiloni. Growth should then pick up more significantly in 2024 (+1.6% for the EU and +1.5% for the euro zone).
Higher inflation
There is all the same a small clearing in this dark: it is the labor market, which resists well. Growth in the employment rate in the EU is expected to reach 1.8% in 2022, before leveling off in 2023 and picking up moderately (+0.4%) in 2024.
As for prices, Brussels expects inflation to be stronger than expected at 8.5% (against 7.6% expected previously). The good news is that the price increase should reach its peak, estimated at 9.3%, by the end of the year. If it remains high in 2023, inflation should decrease to 7% in the EU and 6.1% in the euro zone, to stabilize in 2024 at 3% and 2.6% respectively. Across the Rhine, inflation would be significantly higher than average in 2023 (7.5%), almost double that in France (4.4%). It has already reached a record level across the Rhine (see box).
“Uncertainty remains exceptionally high” due to the war and could lead to even worse figures, however warned Paolo Gentiloni. The difficulties in filling the gas reserves for the winter of 2023-2024 will be a crucial element. Failure on this front would lead to a much more pessimistic scenario, where GDP could fall by 0.9% in 2023 and inflation prove more persistent.
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