EU Expects Eurozone to Avoid Recession as Inflation Eases, With Growth Rebound in 2024

European Central Bank

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KEY TAKEAWAY

  • The European Union (EU) lowered its forecast for eurozone economic growth in 2023 to 0.6% from 0.8%, though it expects the eurozone economy to avoid a recession.
  • The eurozone economy could rebound next year as inflation eases amid a robust labor market.
  • The EU warned the Russia-Ukraine and Israel-Hamas wars have increased uncertainty and downside risks.

The European Union lowered its growth forecast for the the eurozone economy to 0.6% for this year, down from the 0.8% growth predicted in September, but despite the downward revisions to its growth forecasts, the EU does not expect the eurozone to enter a recession.

High inflation, rising interest rates, and weak external demand have contributed to economic challenges this year, though the EU suggested growth could rebound next year to 1.2%, and then 1.6% in 2025 as inflation eases amid a robust labor market.

The EU forecasts inflation to taper off to an annual rate of 3.2% in 2024, and 2.2% in 2025, down from the average of 5.6% this year. The European Central Bank's target for price growth in the medium term is 2%.

Efforts to reduce public debt in some of the bloc's largest economies are losing momentum, however, warned EU officials. Debt jumped as governments borrowed heavily during the pandemic and the energy crisis, while interest rates rose to curb inflation.

The Ukraine-Russia and Israel-Hamas wars have increased uncertainty and downside risks. China's economic recovery and the impact of the transmission of monetary tightening may also affect the forecast, noted the report.

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  1. European Commission. "Autumn 2023 Economic Forecast: A modest recovery ahead after a challenging year."

  2. Reuters. "EU exec cuts euro zone 2023 growth forecast, sees rebound in 2024."

  3. Bloomberg. "Euro Area to Avoid Recession as Inflation Retreats, EU Says."

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