After a prolonged period of stagnation, its economy European Union returns to moderate growth, while its decline inflation continues, notes the Commission in the autumn economic forecasts that he released today.

The Commission also forecasts GDP growth in 2024 by 0.9% in the EU and 0.8% in the Eurozone. Economic activity is projected to accelerate to 1.5% in the EU and 1.3% in the Eurozone in 2025 and to 1.8% in the EU and 1.6% in the Eurozone in 2026.

Eurozone inflation is expected to more than halve in 2024, from 5.4% in 2023 to 2.4%, before gradually easing to 2.1% in 2025 and 1.9% in 2026. In the EU, the process deflation is forecast to be even more pronounced in 2024, with inflation falling to 2.6% from 6.4% in 2023, and continue to decline to 2.4% in 2025 and 2.0% in 2026.

In more detail according to the Commission’s report:

Growth will accelerate as consumption strengthens and investment recovers

After picking up growth in the first quarter of 2024, the EU economy continued to grow throughout the second and third quarters at a steady, albeit subdued, pace.

Employment growth and a recovery in real wages continued to support disposable incomes, but household consumption was subdued. The still high cost of living and increased uncertainty after repeated exposure to extreme shocks, combined with financial incentives to save in a context of high interest rates, led households to save more and more of their income. At the same time, investment disappointed, with a broad contraction in most member states and most asset classes in the first half of 2024.

Consumption restriction appears to be easing. As purchasing power gradually recovers and interest rates decline, consumption is expected to strengthen further. Investment is expected to pick up on strong corporate balance sheets, rebounding earnings and improving credit conditions. The boost from the Recovery Fund and other EU funds will also lead to an increase in public investment.

Overall, domestic demand is expected to drive economic growth. In 2025 and 2026, exports and imports are expected to grow broadly at the same rate, implying a neutral contribution of net trade to growth.

Inflation continues to decline

The process of reducing inflation that started towards the end of 2022 continues despite the slight increase in October, which is mainly due to energy prices.

Pressures on service prices remain high, but are expected to moderate from early 2025 due to a slowdown in wage growth and an expected recovery in productivity. This sets the stage for inflation to decline towards the target in late 2025 in the euro area and 2026 in the EU.

The labor market is strong, unemployment at record levels

The EU labor market remained strong in the first half of 2024 and is expected to remain strong. Employment growth in the EU is expected to continue, albeit at a slower pace, from 0.8% in 2024 (0.9% in the Eurozone) to 0.5% in 2026 (0.6% in the Eurozone).

In October, the rate unemployment in the EU it reached a new historic low, at 5.9%. In 2024 as a whole it is forecast to be 6.1% (6.5% in the Eurozone) and to decline further thereafter, reaching 5.9% in 2025 and 2026 (6.3% in the Eurozone).

Deficit reduction due to fiscal consolidation

As many member states work to reduce their debt ratios, the EU general government deficit is expected to decline in 2024 by around 0.4 basis points, to 3.1% of GDP, and to 3.0% in 2025. In 2026, positive economic momentum is expected to further reduce the deficit to 2.9%. In the Eurozone, the deficit is projected to decrease from 3.0% in 2024 to 2.9% in 2025 and to 2.8% in 2026.

However, the overall EU debt-to-GDP ratio is expected to rise, from 82.1% in 2023 to 83.4% in 2026. This follows a decline of almost 10 percentage points between 2020 and 2023. In the Eurozone, public debt is projected to increase from 88.9% of GDP in 2023 to 90% in 2026.

Uncertainty and risks

Uncertainty and downside risks to the outlook have increased. Russia’s ongoing war against Ukraine and the escalating conflict in the Middle East are fueling geopolitical and energy security risks. A further increase in protectionist measures by trading partners could disrupt global trade, weighing on the EU economy.

On the domestic front, policy uncertainty and structural challenges in the manufacturing sector could lead to further losses in competitiveness and weigh on growth and the labor market. It is also noted that the recent floods in Spain highlight the dramatic consequences that the increasing frequency and extent of natural hazards can have not only on the environment and those affected, but also on the economy.