The European economy has lost momentum this year against the background of a high cost of living, weak external demand and monetary tightening, the commission said in a press release.
While economic activity across Europe is expected to gradually recover, the European Commission’s Autumn Forecast revises GDP growth in 2023 at 0.6 per cent in both the EU and the euro area, 0.2 percentage points below the summer forecast.
Inflation is estimated to have dropped to a two-year low in the euro area in October and is set to continue declining.
Inflation is estimated to have dropped to a two-year low in the euro area in October and is set to continue declining over the forecast horizon.
High, though declining, inflation, tightening monetary policy and weak external demand took a heavier toll in the first three quarters this year than expected earlier.
The latest business indicators and survey data for October point to subdued economic activity also in the fourth quarter of this year, amid increased uncertainty.
Economic activity is expected to gradually pick up as consumption recovers on the back of a steadily robust labour market, sustained wage growth and continued easing of inflation.
Despite tighter monetary policy, investment is projected to continue increasing. In 2024, EU GDP growth is forecast to improve to 1.3 per cent. This is still a downward revision of 0.1 pps from the summer. In the euro area, GDP growth is projected to be slightly lower next year, at 1.2 per cent.
In 2025, with inflation and the drag from monetary tightening subsiding, growth is expected to strengthen to 1.7 per cent for the EU and 1.6 per cent for the euro area.
Inflation, which remains on a downward trend, is estimated to have declined to 2.9 per cent in the euro area in October from its 10.6 per cent peak a year ago. This marks its lowest level since July 2021.
As monetary tightening works its way through the economy, inflation is set to continue declining, though at a more moderate pace.
Headline inflation in the euro area is projected to fall from 5.6 per cent in 2023 to 3.2 per cent in 2024 and 2.2 per cent in 2025. In the EU, the same is set to decrease from 6.5 per cent in 2023 to 3.5 per cent in 2024 and 2.4 per cent in 2025.
Uncertainty and downside risks to the economic outlook have increased in recent months amid Russia’s protracted war of aggression against Ukraine and the conflict in the Middle East, the summer forecast noted.
So far, the latter’s impact on energy markets has been contained, but there is a risk of disruptions to energy supplies that could potentially have a significant impact on energy prices, global output and the overall price level
Economic developments in the EU’s major trading partners, especially China, could also pose risks, the release added.
Fibre2Fashion News Desk (DS)
