Energy prices remain high for businesses and consumers. However, the EU Commission is still a little more positive about the economy in a difficult 2023.
In the winter forecast, the EU Commission raises its expectations for growth this year and also believes that the peak of inflation has been passed. The EU Commission now expects growth of 0.8 percent in the EU as a whole and 0.9 percent in the eurozone in 2023.
If the forecast holds true, the EU will thus avoid the technical recession that was feared to come in 2023, says EU Commissioner for the Economy, the Italian Paolo Gentiloni.
- The economies of the EU countries have seen a number of positive developments. Among other things, energy prices have fallen. And the improved economic climate indicates that we are avoiding a technical recession, says Paolo Gentiloni.
The EU Commission also believes in lower inflation in 2023 and 2024 than in the latest forecast. However, Paolo Gentiloni acknowledges that there is still great uncertainty due to the war in Ukraine.
On the positive side, however, is the annual growth rate for 2022. It is now estimated at 3.5 percent in both the EU and the euro area.
- This shows the EU's remarkable resilience despite Russia's war in Ukraine. A growth of 3.5 percent is higher than the growth in the US and China, says Paolo Gentiloni.
Like other parts of the world, however, the EU is increasingly facing the effects of high inflation. Core inflation, which is calculated without energy and unprocessed food, was still rising in January. This further erodes households' purchasing power.
Inflation will thus help dampen growth in 2023, the European Commission expects.
Wages & interest rates
- Wage development will be below inflation, which will dampen consumers' willingness to buy. Rising interest rates also dampen the desire to borrow money, says Paolo Gentiloni.
He thus expects that, due to the high interest rates, companies will be more cautious about borrowing money to start new projects that can create new jobs.
On the positive side, the European Commission believes that the peak of overall inflation was reached in the autumn of 2022.
- Three consecutive months of subdued overall inflation indicate that the peak is now behind us. After reaching a record high of 10.6 percent in October, inflation has fallen with an estimate for January of 8.5 percent, the winter forecast states.
However, the lower inflation is primarily due to falling energy prices, while core inflation - excluding energy - has not yet peaked, according to the EU Commission.
At the Confederation of Danish Industries, Chief Economist Allan Sørensen emphasizes that Danish and European companies are in a challenging time.
- Uncertainty, high inflation and rising interest rates are hampering the European recovery. Large parts of Europe will experience weak growth in 2023. As many as 16 EU countries are expected to have growth of no more than one percent, says Allan Sørensen.
He believes that the forecast emphasizes that Danish companies have a prospect of very low growth in a number of the largest export markets.
- Germany will experience economic stagnation in 2023, and Sweden has a prospect of negative growth of 0.8 percent, says Allan Sørensen.
/Ritzau/
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