Stay informed with free updates
Simply sign up to the Eurozone economy myFT Digest — delivered directly to your inbox.
The European Commission has downgraded its forecasts for EU and eurozone growth for the year, as higher interest rates weigh on economic activity, and said inflation was expected to halve from the highs of 2023.
In its economic forecasts published on Thursday, the commission said it expected gross domestic product to grow 0.8 per cent in the eurozone this year and 0.9 per cent in the EU, down from 1.2 per cent and 1.3 per cent respectively in its autumn forecast.
Growth is expected to pick up in 2025, rising to 1.5 per cent in the eurozone and 1.7 per cent in the EU.
The commission also revised output for 2023 down a notch to 0.5 per cent in both areas, following a stagnation in the last quarter.
“The rebound expected in 2024 is set to be more modest than projected three months ago, but to gradually pick up pace on the back of slower price rises, growing real wages and a remarkably strong labour market,” said Paolo Gentiloni, the EU’s economy commissioner.
Inflation expectations were revised downward as energy and other commodity prices have come down faster than expected. The European Central Bank raised its deposit rate to a record 4 per cent in September in a bid to tame persistent price pressures.
Annual eurozone inflation is expected to fall by half to 2.7 per cent this year from 5.4 per cent in 2023, a faster decline than the 3.2 per cent rate previously forecast for 2024. Eurozone inflation expectations for 2025 remain unchanged and slightly above target at 2.2 per cent.
The commission warned that trade disruptions in the Red Sea could keep monthly inflation readings elevated.
Markets expect the ECB to start cutting interest rates this year, possibly in April.
But at the European parliament on Thursday, ECB president Christine Lagarde resisted suggestions that rate cuts might be imminent. “We are in a disinflationary process. We are seeing that we do not have enough evidence yet to say that we have the level of confidence that we are going to hit our medium-term 2 per cent [inflation] target and that it will be sustainably there,” she said.
“It will take data, it will take more time, because we are going to decide meeting by meeting. The last thing I want to see is making a hasty decision to see inflation rise again and have to take more measures.
“We need to be more confident. And we don’t have enough yet at this point to be certain that it is sustainable,” she added.
“We do not want to run the risk that it would be reversed, which would then be a waste of everything that we’ve done and would lead us to take yet more measures.”
In its latest growth projections, the commission forecast modest output growth in all 27 EU member states in 2024. Eleven EU economies including Germany, the EU’s largest economy, experienced technical recessions in 2023.
Companies are struggling to adapt to the bloc’s tougher business environment. As pandemic-era financial support is unwound in many countries, the number of bankruptcies increased 0.6 per cent in the final quarter of last year, according to Eurostat, the EU’s statistics office.
However, the number of business registrations increased 0.1 per cent from the previous three-month period — the fourth consecutive quarter of a moderately upward trend.
Additional reporting by Aiden Reiter in London
Source: Economy - ft.com
