EU Lifts Eurozone Growth & Inflation Projections

(RTTNews) - The European Commission raised the euro area economic growth and inflation projections for this year and next on Monday, but warned that the single currency bloc faces several risks that policymakers must monitor closely.

The currency-bloc is projected to grow 1.1 percent this year and 1.6 percent in 2024, the executive arm of the EU said in its Spring economic forecast. These figures reflect upward revision from 0.9 percent and 1.5 percent, respectively.

Data suggested a smaller-than-estimated contraction in the final quarter of 2022 and positive growth in the first quarter of this year, the EU said.

"We avoided a recession and are set for moderate growth this year and next," Commissioner for Economy Paolo Gentiloni said.

"Yet risks are too plentiful for comfort: we must remain vigilant."

The region weathered the energy crisis with the rapid diversification of supply and a marked decline in consumption.

Moreover, the slower pace of economic growth had a limited impact on the labor market, the EU noted. Labor market tightness, labor hoarding as well as strong demand in services are set to cushion the impact of the economic slowdown.

Inflation also surprised to the upside. Price growth is expected at 5.8 percent this year and 2.8 percent in 2024.

The inflation outlook this year was revised up by 0.2 percentage points and that for next year by 0.3 percentage points from the winter forecast, citing the persistent core inflation pressures.

The slowdown in core inflation is forecast to be more gradual than previously projected.

Germany's real GDP growth will slow sharply to 0.2 percent this year before improving to 1.4 percent in 2024 on the back of a recovery in consumption and investment, the EU said.

France's economic growth is forecast to remain subdued this year at 0.7 percent after a significant slowdown in the second half of 2022. The economy is expected to gain momentum next year with growth improving to 1.4 percent driven by lower energy prices.

Following the strong expansion in 2022, Spain's economic activity is likely to slowdown to 1.9 percent in 2023.

However, labor market resilience and the implementation of the Recovery and Resilience Plan are set to sustain growth, which is forecast to accelerate further in 2024. Next year, the Spanish economic growth is seen at 2.0 percent.

Italy's real growth is forecast to ease to 1.2 percent in 2023 and 1.1 percent in 2024, as higher prices weigh on private consumption, while government measures continue to support investment.