Following a robust post-pandemic expansion in 2021 and 2022, the EU economy has lost momentum. Real GDP contracted very mildly in the fourth quarter of 2022 and barely grew in the first three quarters of this year.
A high cost of living took a heavier toll than expected. On the external side, global trade provided little support. Meanwhile, the response of monetary policy to high inflation is working its way through the economy, and fiscal support is partly being phased out.
Economic Forecast - Autumn 2023
Bar chart with 3 data series.
The chart has 1 X axis displaying categories.
The chart has 1 Y axis displaying %. Data ranges from -6.8 to 2.6.
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This Autumn Forecast projects
GDP growth in 2023 at 0.6% in both the EU and the euro area. This is 0.2 pps. lower than projected in the summer and an even larger downward revision compared to the Spring Forecast, by 0.4 pps. Going forward, growth is expected to rebound mildly as consumption recovers with rising real wages, investment remains supportive and external demand picks up.
EU GDP growth is forecast to improve to 1.3% in 2024, still below potential and a downward revision of 0.1 pps. from summer. It is projected to gain further pace, to 1.7%, in 2025.
In the euro area, GDP growth is forecast to be slightly lower, at 1.2% in 2024 and 1.6% in 2025. HICP inflation is estimated to have reached a two-year low in the euro area in October and is projected to continue declining over the forecast horizon. In the EU, headline inflation is set to decrease from 6.5% in 2023 to 3.5% in 2024 and 2.4% in 2025. In the euro area, it is forecast to fall from 5.6% in 2023 to 3.2% in 2024 and 2.2% in 2025.
The loss of growth momentum so far this year has been underpinned by the lack of a solid growth driver, with weakness especially in consumption but also on the external side. Private consumption broadly stagnated on aggregate, as nominal wage growth continued to lag behind inflation. The volume of retail sales was still declining on a year-on-year basis up to summer, notably in automotive fuels and food, where prices remain elevated. At the same time, spending on services held up, partly related to the further recovery in tourist arrivals to the EU. However, exports declined, and net trade contributed positively to growth only because the decline in imports outpaced that in exports. Investment - both public and private - also increased only marginally in the first half of the year, though its dynamics were very volatile across Member States. On the output side, gross value added in industry was held back by weak demand and high energy costs. Similarly, high input and financing costs, as well as labour shortages, dragged on construction activity, particularly in housing. With purchasing power constrained by inflation, business activity in contact-intensive services stagnated, following its fast recovery last year. By contrast, IT and business services, which account for almost one fifth of EU gross value added, enjoyed continued expansion...
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