Euro zone economic growth is likely to be stronger than previously expected this year while inflation will be lower than in forecasts towards the end of 2022, the European Commission said on Monday (February 13, 2023).
The EU executive arm said economic growth in the 20 countries using the euro was likely to be 0.9% this year, rather than the 0.3% predicted last November.
The single currency area will narrowly avoid the technical recession that the Commission expected three months ago, as growth in the last three months of 2022 was 0.1% quarter-on-quarter and the Commission expects a 0.0% figure in the first three months of 2023.
The Commission said uncertainty surrounding the forecast was high, but risks to growth were broadly balanced.
Favourable developments since the Autumn Forecast have improved the growth outlook for this year. Continued diversification of supply sources and a sharp drop in consumption have 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. As inflationary pressures persist, monetary tightening is set to continue, weighing on business activity and exerting a drag on investment.
via Reuters
