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Let me begin with the four key messages emerging from this forecast:
First, the EU economy entered 2023 on a healthier footing than expected, and looks set to escape recession.
Since autumn, the EU economy has seen a number of positive developments. The European gas benchmark price has fallen below its pre-war level, helped by demand restraint and diversification of supply sources. And of course, exceptionally mild weather. A better than previously expected turnout for growth at the end of last year and improving economic sentiment suggest that the EU economy is thus set to narrowly escape the technical recession that was projected back in autumn.
Second, and linked to the first point, the growth forecast for this year is revised slightly higher
EU GDP growth for 2022 is now estimated at 3.5%, 0.3 percentage points higher than projected in Autumn.
For 2023, the EU economy is forecast to expand by 0.8%, 0.5 pps. above the Autumn projection.
Third, headline inflation has peaked and is set to decline further
Thanks to rapidly declining energy prices, this new forecast has lowered the projections for inflation.
Headline inflation in the EU is forecast to fall from 9.2% in 2022 to 6.4% in 2023 and 2.8% in 2024. This compares with the Autumn projections of 7.0% in 2023 and 3.0% in 2024.
Fourth, risks appear more balanced.
While past risks related to pandemic and gas shortages have ebbed significantly, uncertainty remains very high in relation to the Russian war of aggression and to broader geopolitical tensions.
I'll now outline the main points of our forecast in more detail.
The EU economy posted a positive growth surprise in the second half of last year. First, the slowdown in momentum in the third quarter turned out milder than previously estimated. Then in the fourth quarter, the EU economy stagnated, instead of the 0.5% contraction expected in autumn.
These are quite outstanding outturns, proving the remarkable resilience of the EU economy to the headwinds unleashed by Russia's war against Ukraine and in particular the energy crisis. For 2022, growth in the EU and the euro area is estimated at 3.5%, a higher rate than recorded by either the US or China.
In 2023, growth is still expected to slow down, on the back of powerful headwinds. Wage developments are expected to remain below inflation in the short term, constraining consumption.
Also, the cumulative impact of past monetary tightening is starting to weigh on lending activity, while the cycle of interest rate hikes is not yet over. On the positive side, falling wholesale gas prices are set to benefit consumption, as they progressively pass through to consumer prices.
Overall, the growth forecast for 2023 has been revised up to 0.8% in the EU and 0.9% in the euro area.
For 2024, GDP growth is expected at 1.6% in the EU and 1.5% in the euro area, unchanged compared to the Autumn Forecast.
The Commission's economic sentiment indicator for the EU has been steadily improving since November. The improvement is notable in services, whereas confidence in the construction sector worsened at the turn of the year...
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