Commission reduces 2023 economic growth forecast for EU, euro area

Euros. Source: Pixabay

Several factors including the economic slowdown in China continue to negatively impact the euro area economy, leading the European Commission to reduce its economic growth forecast for 2023 from 1.1 to 0.8 percent, the Commission announced Monday.

The EU economy will continue to grow this year, although in its latest economic forecast, the European Commission has revised its growth forecast for the EU economy in 2023 to 0.8 percent, down from the 1 percent projected this spring, the Commission said when presenting its summer forecast on Monday.

It likewise revised down its growth forecast for 2024 from 1.7 percent to 1.4 percent.

The Commission further revised its economic growth forecast for the euro area as well, down from 1.1 to 0.8 percent for this year and from 1.6 to 1.3 percent in 2024.

Online news outlet Politico highlighted that out of the six largest EU countries for which the Commission revised its growth estimates in its latest forecast, Germany is the only one set to contract this year — by 0.4 percent — before returning to growth of 1.1 percent next year.

France and Spain, meanwhile, are both expected to see their economies grow by 0.3 percentage points each this year, while growth forecasts for Italy, Poland and the Netherlands were all revised to below 1 percent growth.

According to the Commission, reduced consumption, banks' tighter lending conditions as a result of higher interest rates, China's economic slowdown and the related slump in exports are all negatively impacting the euro area economy.

The EU's executive arm also noted that Russia's ongoing war in Ukraine and broader geopolitical tensions continue to pose risks and remain a source of uncertainty as well, weighing on its outlook alongside other factors such as mounting climate risks, as illustrated by extreme weather conditions and unprecedented wildfires and floods seen this summer.

Inflation, meanwhile, is expected to continue to decline over the forecast horizon, but nonetheless remain above the European Central Bank's (ECB) target level of 2 percent both this year and next.

The Commission revised its forecast for harmonized index of consumer prices (HICP) inflation in the EU from 6.7 to 6.5 this year, and from 3.1 to 3.2 next year. In the euro area, forecast inflation has been revised from 5.8 to 5.6 percent in 2023 and from 2.8 percent to 2.9 percent in 2024.


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Editor: Aili Vahtla

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