By Jan Strupczewski
BRUSSELS (Reuters) – The euro zone economy will grow slower than expected this year after price growth eroded purchasing power and high ECB interest rates curbed credit, but inflation in 2024 will also be slower than expected, the European Commission said on Thursday.
The EU executive forecast that gross domestic product in the 20 countries sharing the euro currency would increase only 0.8% in 2024 rather than 1.2% it expected last November, but it would still be up from a 0.5% rise in 2023.
In 2025, economic growth should accelerate to 1.5%, the Commission said, slightly reducing its earlier 1.6% forecast.
“Prospects for the EU economy in the first quarter of 2024 remain weak. However, economic activity is still expected to accelerate gradually this year,” the Commission said.
“As inflation continues to abate, real wage growth and a resilient labour market should support a rebound in consumption,” it said.
The EU’s biggest economy Germany will be the biggest drag on euro zone growth this year and next, with growth of only 0.3% in 2024 rather than 0.8% the Commission expected in November and 1.2% in 2025, after a 0.3% recession last year.
Second biggest France will also grow more slowly in 2024 at 0.9% rather than 1.2% seen in November and third biggest Italy expanding only 0.6% rather than 0.9% forecast three moths ago.
Because economic activity will be smaller, also consumer price growth in 2024 is likely to slow down more than previously forecast — to 2.7%, rather than only to 3.2% seen in November.
In 2025 inflation will decelerate further to 2.2%, close to the European Central Bank’s target of 2.0% over the medium term, the Commission said.
“Lower-than-expected inflation outturns in recent months, lower energy commodity prices and weaker economic momentum set inflation on a steeper downward path than anticipated in the Autumn Forecast,” the EU executive arm said.
But it noted that while inflation will continue to fall, the decline will be slower because EU governments phase out subsidies to energy prices and because shipping costs rise as a result of trade disruptions in the Red Sea.
“By the end of the forecast horizon, euro area headline inflation is projected to post just above the ECB target, with EU inflation a notch higher,” the Commission said.
(Reporting by Jan Strupczewski)
