The euro zone economy will grow at a slower pace than previously expected in 2023 and next year based on the latest forecast from the EU Commission on Monday, with consumer demand slumping due to high inflation and the biggest economy, Germany stuck in economic recession this year.
In its preliminary forecast for gross domestic product (GDP) and inflation for the five largest economies of the European zone, the EU Commission said that the GDP of the European zone will grow by 0.8% in 2023 and 1.3% in 2024, compared with forecasts of 1.1% and 1.6% respectively. -each issued in May.
"Weakness in domestic demand, particularly consumption, suggests that high and still rising consumer prices for most goods and services have a heavier impact than expected in spring forecasts,"
"This is despite falling energy prices and a very strong labor market, which is seeing the lowest unemployment rate, sustained job growth, and rising wages," the EU Commission reported.
The EU Commission forecasts European zone consumer inflation of 5.6% in 2023 and 2.9% in 2024, both well above the European Central Bank's 2.0% target. Inflation this year is lower than the 5.8% forecast in May, but higher than the forecast in 2024, as the forecast in May was 2.8%.
The ECB has been raising rates rapidly since mid-2022 to control price growth, making credit for the economy higher and ultimately a factor affecting growth forecasts.
Outlook indicators now point to a slowdown in economic activity over the summer and the coming months, with continued weakness in industry. Germany, Europe's largest economy, will shrink by 0.4% this year, the EU Commission said. This prompted to lower the growth forecast of 0.2% from May. Next year, Germany's growth is also expected to be slower at 1.1% compared to the previous forecast of 1.4.
Also reported, Italy and the Netherlands will also grow more slowly this year, forecasting GDP growth of 0.9% and 0.5% respectively, from 1.2% and 1.8% respectively. But France and Spain will grow faster than expected in 2023.
