Posted inMacroeconomics

European area economy lagging in GDP growth – EC

The European Commission (EC) has revised down its GDP growth predictions for the bloc, acknowledging the high cost of living, weak external demand and monetary tightening.

In its Autumn 2023 Economic Outlook, the EC expected economic activity would gradually recover but that GDP growth would be 0.6% in both the EU and the European area. The EC had said in its Summer 2023 Economic Outlook that growth would be 0.8%.

By comparison, GDP growth in the EU area was expected to reach 1.3% in 2024, followed by 1.7% in 2025. The EC still predicted for 2025, however, that with inflation and the drag from monetary tightening subsiding, growth would strengthen to 1.7% for the EU and 1.6% for the euro area.

“As monetary tightening works its way through the economy, inflation is set to continue declining, though at a more moderate pace, reflecting a slower, but more broad-based, easing of inflationary pressures in food, manufactured goods and services,” the outlook noted.

“Headline inflation in the euro area is projected to fall from 5.6% in 2023 to 3.2% in 2024 and 2.2% in 2025. In the EU, headline inflation is set to decrease from 6.5% in 2023 to 3.5% in 2024 and 2.4% in 2025.”

Challenging year

In a statement, Valdis Dombrovskis, the European Commissioner for trade, said 2023 had been a challenging year for the EU economy, “dragged down” by Russia’s war against Ukraine, along with weak global demand and higher consumer prices.

“Following very weak growth this year, we can expect growth to rebound modestly in 2024, helped by strong labour markets and continued easing of inflation,” he added. “We still face a highly uncertain geopolitical landscape, however, now further aggravated by a conflict in the Middle East.

“Despite our resilience in the face of consecutive shocks, the EU economy must also deal with longstanding structural challenges. This makes it even more urgent for Member States to carry out – fully – the reforms and investments set out in their Recovery and Resilience Plans.”

The Autumn 2023 Economic Outlook argued the more-advanced economies were suffering on a global scale, noting: “Global growth (excluding the EU) is projected to reach 3.5% in 2023, reflecting strength in advanced economies in the first half of the year. It is forecast to inch down to 3.2% in 2024 as the effects of tight monetary policy continue weighing in and the slowdown in China continues. It is then expected to pick up again to 3.5% in 2025, as the recovery in the advanced economies takes hold.”

Pete Carvill

Pete Carvill is a reporter, writer, and editor based in Berlin who has been writing for the B2B and mainstream media since 2007. He is a contributing writer for Expert Investor and, in addition, has...

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