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Greater resilience of the economy, but still strong and worrying inflation. In its half-yearly forecast, published on Monday May 15, the European Commission unveiled a slightly better than expected outlook at the end of 2022, with growth of 1% expected in 2023 and 1.7% in 2024. “The European economy is doing better than we expected last fall”, insists Paolo Gentiloni, the Commissioner for the Economy. In November 2022, Community executive economists forecast gross domestic product (GDP) growth of 0.8% this year and 1.6% in 2024.
Among the continent’s major economies, Germany should post one of the lowest growth rates this year, at 0.2%, and a 2024 vintage of around 1.3%. Business investment, linked to the European Central Bank rate hike, is expected to fall 0.7%.
Brussels expects French growth of around 0.7% in 2023, and 1.4% next year, thanks to a good performance of investments, while the third economy of the euro zone, Italy, should experience this year 1.2% growth in GDP thanks in particular to the European recovery plan, and 1.1% in 2024. Among the most dynamic economies, the Mediterranean countries stand out. Spain and Greece exceed 2% growth, again driven by the European recovery plan.
These forecasts are explained, according to the Italian commissioner, by “determined efforts to strengthen our energy security, a remarkably resilient labor market and the easing of supply constraints”. In the summer of 2022, due to the war in Ukraine and the stoppage of Russian gas imports, gas prices had increased tenfold during the summer, bringing inflation close to the 10% threshold. in the euro zone, and nearly 20% in certain countries such as Estonia.
“Employment rate at record highs”
Brussels is now anticipating a fall in inflation, but much less rapidly than expected at the end of 2022. In 2023, after peaking at 7.6% in March, it should gradually fall to around 5.8% on average in the euro zone (to 5.5% in France), and 2.8% in 2024. Poland, the Czech Republic, Slovakia and Hungary should still experience double-digit price increases this year.
This inflation should be fueled in particular by wage increases, which will continue in Europe, even if they are insufficient to prevent a loss of purchasing power. Under these conditions, the executive expects wage demand movements across the continent. And all the more so as the labor market remains extremely tight.
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