European Commission sees growth slowdown in 2023 and recession in Germany

The European Commission expects economic growth to be slower in 2023 than previously thought, European Economic Affairs commissioner Paolo Gentiloni announced on Monday.

In the spring, the Commission expected growth of 1 per cent in 2023, but now it seems that will be limited to 0.8 per cent. The leading actor is the German economy, where the Commission sees a recession looming this year. It sees the economy deteriorating by 0.4 per cent this year, up from minimal growth (0.2 per cent). The Netherlands is forecast to grow by 0.5 per cent, down from 1.8 per cent. Spanish and French growth is still above 1 per cent, at 1.9 per cent and 1.2 per cent respectively.

The new outlook focuses on six countries: Germany, Spain, France, Italy, the Netherlands and Poland. "We have chosen the largest economies, but in the autumn forecast, we will go into the economy of the 27 EU member states," Gentiloni said.

Moderate pickup

European economic growth is suffering from high inflation, and the European Central Bank is raising interest rates to curb inflation. High prices are "taking a bigger toll than expected", but high interest rates are making it harder for companies to get loans. ​ At the same time, unemployment remains exceptionally low, the labour market is "robust", and wages are rising. As a result, the Commission expects a "moderate pickup" in growth next year.

"Economic activity slowed down in the second quarter and will continue to do so in the coming quarters," Gentiloni said. In the eurozone, growth remains limited to 0.8 per cent, down from a previous forecast of 1.1 per cent. For 2024, the Commission sees growth of 1.4 per cent in the EU, down from 1.7 per cent in the spring. This is 1.3 per cent in the euro area, down from 1.6 per cent.

Inflation continues to fall but remains high. Inflation will be 6.5 per cent this year, down from 6.7 per cent forecast in the spring. For 2024, the Commission sees inflation at 3.2 per cent for the EU as a whole; for the euro area, inflation should reach 5.6 per cent this year and 2.9 per cent in 2024, putting the ECB's target of a return to 2 per cent inflation well within reach.



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