by Jan Strupczewski
BRUSSELS (Reuters) – The euro zone economy will grow weaker than expected this year as rising prices have eroded purchasing power and the ECB’s high interest rates curb credit, but inflation will also be lower, the European Commission said on Thursday.
The European executive forecasts that the GDP of the 20 countries sharing the euro will increase by only 0.8% in 2024, compared to 1.2% expected in November. In 2023, activity in the euro zone increased by 0.5%.
In 2025, the bloc’s economic growth is expected to accelerate to 1.5%, according to the Commission, compared to a previous forecast of 1.6%.
“The outlook for the European Union (EU) economy in the first quarter of 2024 remains degraded. However, economic activity is expected to gradually accelerate this year,” the Commission said.
“As inflation continues to fall, real wage growth and a resilient labor market should fuel a rebound in consumption,” the Commission added.
Germany, the EU’s largest economy, will be the main drag on euro zone growth this year and next, with growth of 0.3% now expected in 2024 compared to 0.8% forecast in November , and by 1.2% in 2025. The German economy contracted by 0.3% last year.
France, the zone’s second largest economy, will also experience slower growth in 2024 (0.9% compared to 1.2% forecast in November) and Italy, the zone’s third largest economy, will only grow by 0.6%. against 0.9% forecast three months ago.
The slowdown in growth will put pressure on inflation, which will fall to 2.7% in 2024 compared to 3.2% expected in November.
In 2025, inflation will continue to slow to 2.2%, close to the European Central Bank’s 2% target, the Commission said.
“A sharper than expected decline in inflation in recent months, cheaper energy raw materials and weaker economic dynamics will cause inflation to fall more than expected,” the EU executive said.
The slowdown in inflation could, however, be slower as EU governments phase out aid on energy bills and shipping costs rise.
“By the end of the forecast period, headline inflation in the euro area is expected to be just above the ECB’s target, with inflation in the EU somewhat higher,” he said. declared the Commission.
(Report Jan Strupczewski, Corentin Chappron)
Copyright © 2024 Thomson Reuters
I have over 8 years of experience working in the news industry. I have worked as a reporter, editor, and now managing editor at 247 News Agency. I am responsible for the day-to-day operations of the news website and overseeing all of the content that is published. I also write a column for the website, covering mostly market news.
