EU economy avoids recession but faces headwinds


According to the European Commission’s Winter 2023 Economic Forecast, which came out on Monday, the European Union (EU) and eurozone are expected to just barely avoid a technical recession.

According to the document released by European Commissioner for Economy Paolo Gentiloni, the growth projection for 2023 has been increased to 0.8 percent for the EU and 0.9 percent for the eurozone. This represents an increase of 0.5 to 0.6 percentage points above the autumn forecast, according to the Xinhua news agency.

The Commission says, “At this point, it looks like both regions will just barely avoid the technical recession that was predicted for the start of the year.”

Gentiloni anticipated that both the EU and the eurozone would experience a growth rate of 3.5 percent in 2022.

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Since the fall, a significant decline in the price of gasoline and a robust labour market are among the factors that have helped strengthen the growth prognosis for 2023.

He said that the price of gasoline in Europe has dropped below what it was before the Russia-Ukraine crisis because demand has gone down, the weather has been warm, and there are more ways to get gasoline.

According to Gentiloni, TTF (Title Transfer Facility) futures were trading within a narrow band of 55–70 euros per megawatt-hour at the end of the projection period (1 February), which is significantly lower than the autumn levels but more than three times higher than in 2019.

The resilience of European consumers and businesses also played a significant part, since consumption in October and November was 25 percent lower than the average for 2017–2021, thereby exceeding the EU’s gas consumption reduction target.

Also, the job market is still doing well, and the unemployment rate will stay at its all-time low of 6.1% until 2022.

The headline inflation rate in the EU is anticipated to decline from 9.2% in 2022 to 6.4% in 2023 and then to 2.8% in 2024.

The inflation rate in the Eurozone should follow a similar pattern, decreasing from 8.4% last year to 5.6% this year and 2.5% next year.

According to the prediction, though, headwinds will continue to be severe. Consumers and businesses continue to suffer from high energy prices, and core inflation continued to rise in January, significantly diminishing the purchasing power of consumers. As long as inflationary pressures persist, monetary tightening will continue to impact economic activity and investment.

Inflation risks continue to be closely tied to market movements, matching some of the highlighted growth risks. Inflation risks will be higher, especially in 2024, because price pressures may be bigger and last longer than expected if wage growth stays above average for a long time.

Gentiloni said, “We have a better-than-expected prognosis and a less negative-than-expected scenario, but that doesn’t mean we have a positive view overall.” 

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