The economic growth outlook for this year has increased to 0.8 percent in the EU and 0.9 percent in the euro area, respectively 0.5 and 0.6 percentage points higher than in the Autumn Forecast, according to the European Commission’s Winter 2023 Economic Forecast report. Both areas are now set to avoid the recession that was anticipated for the turn of the year, though headwinds persist. The growth rate for 2024 remains unchanged, at 1.6 percent and 1.5 percent for the EU and the euro area, respectively.
According to the report, favorable developments since the Autumn Forecast in November have improved the growth outlook for this year. Continued diversification of supply sources and a sharp drop in consumption have left natural gas storage levels above the seasonal average of past years, and wholesale natural gas prices have fallen well below pre-war levels.
Meanwhile, consumers and businesses continue to face high energy costs. As inflationary pressures persist, monetary tightening is set to continue, weighing on business activity and exerting a drag on investment. The inflation forecast has been revised slightly downwards compared to autumn, mainly reflecting developments in the energy market. Headline inflation is forecast to fall from 9.2 percent in 2022 to 6.4 percent in 2023 and to 2.8 percent in 2024 in the EU. In the euro area, it is projected to decelerate from 8.4 percent in 2022 to 5.6 percent in 2023 and to 2.5 percent in 2024.