Autumn 20228/24/2023 ![]() As inflation moderates to 3.0% in the EU and 2.6% in the euro area, growth is forecast to progressively regain traction, averaging 1.6% and 1.5% respectively. By 2024, the EU is set to have largely adjusted to the shock. Though rapidly declining throughout the year, average inflation is projected to remain high, at 7.0% in the EU and 6.1% in the euro area – again a very large revision with respect to the 4.6% and 4.0% expected respectively for the EU and the euro area only a few months ago. For 2023 as a whole, this forecast projects real GDP growth in both the EU and euro area at 0.3% - well below the 1.5% and 1.4% expected in the SiF. However, with powerful headwinds still holding back demand, the EU economy is set to manage only lacklustre growth. Growth would return in spring, as inflation progressively relaxes its grip on the economy. The EU and euro area, and most Member States, are therefore expected to experience a technical recession this winter. The contraction of economic activity is set to continue in the first quarter of next year. ![]() Accelerating and broadening price pressures in the first ten months of the year have moved the expected inflation peak to the fourth quarter of this year and lifted the yearly inflation rate projection to 9.3% in the EU and 8.5% in the euro area, about one percentage point higher than what was expected in the SiF. Inflation also continued to surprise on the upside. Notwithstanding a projected contraction of GDP in the fourth quarter, the momentum from 2021 and strong growth in the first half of the year are set to lift real GDP growth in 2022 as a whole to 3.3% in the EU - well above the 2.7% projection of the Summer interim Forecast (SiF). Confidence plunged also in the business sector, amid high production costs, remaining supply bottlenecks, tighter financing conditions and heightened uncertainty. As the terms-of-trade shock makes its way through the economy, the sharp erosion of the purchasing power of households has shifted consumers’ sentiment dramatically. The expansion continued in the third quarter, though at a weaker pace. With the easing of containment measures, consumers resumed international travel and flocked back to restaurants, hotels and other contact-intensive services, unleashing a strong spending spree. Although creeping inflation had already dented some of the post-pandemic euphoria ahead of the war, real GDP growth in the first half of the year beat expectations. The EU is among the most exposed economies, due to its geographical proximity to the war and heavy – albeit much diminishing – reliance on imports of fossil fuels. The sharp rise in inflation under the pressure of energy, food and other commodity prices is hitting a global economy that is still struggling with the economic consequences of the pandemic crisis. The war continues to cause untold suffering and destruction in Ukraine, but also has economic reverberations that extend far beyond. ![]() As Russia’s war of aggression against Ukraine enters its ninth month, there is no sign of a let-up in the fighting, let alone a peaceful resolution of the hostilities.
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