The European Commission now expects the EU and euro area to contract in the last quarter of this year and first quarter of 2023, amounting to a technical recession, before returning to positive growth next spring.
Growth forecasts for 2023 were slashed to 0.3 percent in both the EU and the euro area, a cut of over one percentage point from the previous estimates in July. The downgrade is mostly the consequence of Russia’s war on Ukraine, which exacerbated the energy crisis and drove up inflation, as well as tightening financial conditions and hitting business confidence.
“We are approaching the end of a year in which Russia has cast the dark shadow of war across our continent once again,” said EU Economy Commissioner Paolo Gentiloni. “Soaring energy prices and rampant inflation are now taking their toll and we face a very challenging period both socially and economically,” he said.
Three countries are now expected to experience negative growth 2023: Germany, by 0.6 percent, Latvia, by 0.3 percent, and Sweden, by 0.6 percent.
Only four countries are expected to grow above one percent — Ireland, Malta, Romania and Bulgaria — with the rest at one percent or below.
Meanwhile GDP expectations for this year were raised to 3.2 percent in the single currency bloc and 3.3 percent for the EU as a whole, up from 2.6 and 2.7 previously, largely due to strong performance in the service sector as consumers rushed to spend pent up pandemic savings.
The EU executive also gave its first forecast for 2024, which sees growth returning to the bloc by 1.5 percent in the euro area and 1.6 percent in the EU.
The Commission also expects inflation to stay higher for longer, at 8.5 percent in the euro area this year and 6.1 percent the next, above the previously forecasted 7.6 percent and 4 percent respectively.
Similarly, in the EU prices are now expected to rise 9.3 percent year-on-year, and stay high at 7 percent in 2023 — up from 8.3 percent and 4.6 percent previously.
Employment growth will also grind to a halt in 2023, reversing a trend which had brought employment in the bloc to record levels after the pandemic. Unemployment will see an uptick to 7.2 percent in the euro area and 6.5 percent in the EU in 2023.
