The European Commission’s Autumn Economic Forecast released on Wednesday revealed a slowdown in the European Union’s (EU) economy during 2023. The Commission revised its growth forecast downward for both the EU and the eurozone, expecting growth of 0.6 percent compared to the previously projected 0.8 percent.
Throughout the first three quarters of 2023, the actual gross domestic product (GDP) in the EU experienced minimal growth. Factors such as persistent high inflation, although diminishing, coupled with tighter monetary policies, exerted a more significant impact than initially anticipated. Weak external demand further contributed to this economic deceleration, as indicated by the latest business indicators and October survey data, signaling subdued economic activity in the fourth quarter amid heightened uncertainty.
European Commissioner for Economy Paolo Gentiloni remarked, “We are approaching the end of a challenging year for the EU economy. Strong price pressures and necessary monetary tightening, along with subdued global demand, have taken a toll on households and businesses.“
Projections for the EU’s GDP in 2024 foresee a 1.3 percent increase, slightly below the earlier summer forecast by 0.1 percentage points. Similarly, the eurozone’s economy is expected to grow by 1.2 percent in the coming year. Looking ahead to 2025, the Commission anticipates growth rates of 1.7 percent for the EU and 1.6 percent for the eurozone.
The autumn forecast suggests a declining trend in inflation. In the eurozone, headline inflation is expected to drop from 5.6 percent in 2023 to 3.2 percent in 2024 and further to 2.2 percent in 2025. In the broader EU context, the projected inflation rate for 2023 stands at 6.5 percent, with estimates indicating a decrease to 3.5 percent in 2024 and 2.4 percent in 2025.
The reduction in inflation is primarily attributed to declining energy prices. Moreover, this moderation in inflation has expanded beyond energy and food categories, as outlined by the Commission. Expectations suggest a continued decline in inflation due to monetary tightening, albeit at a more measured pace.
There are expectations of a decrease in the ratio of public deficit to GDP in the EU, projected to reach 3.2 percent this year. Subsequent reductions are forecasted for the following years, with the public deficit anticipated to decline to 2.8 percent of GDP in 2024 and further to 2.7 percent in 2025. However, the Commission emphasized associated risks to this forecast, including geopolitical tensions in regions like Ukraine and the Middle East, the impact of climate change, and a potential extended adjustment period concerning monetary policy tightening.
In a notable expansion, the Autumn Economic Forecast now covers Bosnia and Herzegovina, Moldova, and Ukraine, countries granted EU candidate status by the European Council last year.