The EU Commission has increased its growth forecast for the European economy. The EU economy will grow by 1.0 percent this year instead of the previously expected 0.8 percent, according to the authority’s spring forecast presented in Brussels on Monday. For the countries of the euro zone, it is now assuming growth of 1.1 percent – after 0.9 percent in the winter forecast published in February. For Germany, growth of 0.2 percent is expected for the current year. Brussels is thus more pessimistic than the federal government.
“The EU economy has avoided a recession,” said Economics Commissioner Paolo Gentiloni in Brussels. “I think we should be proud that the European economy is showing such remarkable resilience. That is no small achievement considering the nature and magnitude of the shocks that have been experienced.” Dealing with the energy crisis, the coordination of tax policy and the impact of the Corona aid money have contributed to the scenario being much better than expected. “If we look back at what we expected last fall, the scenario is much, much better.” None of this is a reason for complacency, however. Inflation, for example, remains high.
In its spring forecast, the Commission revised headline inflation upwards for the euro area. While in February it was still assuming that headline inflation in the euro zone was likely to fall from 8.4 percent in 2022 to 5.6 percent this year, it is now expected to be 5.8 percent. 2.8 percent is expected for 2024.
“Inflation continues to fall thanks to rapidly falling energy prices,” Gentiloni said. However, core inflation – inflation without sharply fluctuating energy and food prices – is still high, even if it has probably peaked. “Looking ahead, headline inflation is likely to decelerate further. Core inflation is likely to moderate gradually as pressure from past cost shocks eases and financing conditions tighten.”
Green MEP Rasmus Andresen said the projection sounds positive at first. But: “The interest rate hikes by the ECB have not yet been able to lower core inflation. On the other hand, they have made it increasingly difficult for companies and private individuals to get money for urgently needed investments.” For people, persistently high inflation meant further losses in real income.
In its spring projection presented at the end of April, the federal government expects gross domestic product to increase by 0.4 percent this year. The International Monetary Fund (IMF), on the other hand, is far more pessimistic: In its economic forecast presented in April, the IMF even expects Germany’s economic output to decline by 0.1 percent this year.
According to the Commission forecast, German industry has proven to be resilient to the rise in production costs. Full order books boosted manufacturing and exports. In addition, the robust development on the German labor market is expected to continue, which will lead to real wages catching up and support consumption. According to a forecast by the EU Commission, the German economy could grow by 1.4 percent in 2024; the federal government is assuming 1.6 percent.
Overall, the forecasts highlighted “notable country differences in public finances, but also in growth and inflation,” Gentiloni said. It is important to monitor these divergences to prevent them from becoming entrenched. The forecast confirms the Commission’s will to take a more country-specific approach to budgetary surveillance of EU countries.
In reform plans for the EU debt rules, the Brussels authorities proposed at the end of April that instead of uniform guidelines for all countries, individual methods should be used for each country in order to reduce debt and deficits in the long term. The Commission’s proposals still have to be negotiated by the states and the European Parliament. The respective positions on the debt rules and the Commission’s proposals vary greatly in the individual EU countries.
For the coming year, the Commission is assuming growth of 1.7 percent in the EU, after 1.6 percent in the winter forecast. For the euro area, it expects 1.6 percent in 2024 (previously: 1.5 percent). (dpa)