EU executive raises euro zone 2023 growth forecast, sees lower inflation

EU executive raises euro zone 2023 growth forecast, sees lower inflation

BRUSSELS (Reuters) – Euro zone economic growth is likely to be stronger than previously expected this year while inflation will lower than in forecasts towards the end of 2022, the European Commission said on Monday.

The EU executive arm said economic growth in the 20 countries using the euro was likely to be 0.9% this year, rather than the 0.3% predicted last November.

The single currency area will narrowly avoid the technical recession that the Commission expected three months ago, as growth in the last three months of 2022 was 0.1% quarter-on-quarter and the Commission expects a 0.0% figure in the first three months of 2023.

The Commission said uncertainty surrounding the forecast was high, but risks to growth were broadly balanced.

“Domestic demand could turn out higher than projected if the recent declines in wholesale gas prices pass through to consumer prices more strongly and consumption proves more resilient,” it said.

“Nonetheless, a potential reversal of that fall cannot be ruled out in the context of continued geopolitical tensions,” it said.

The Commission said external demand could turn also out to be more robust following Chinas re-opening – which could, however, fuel global inflation, but that risks to inflation were largely linked to developments in energy markets.

Euro zone consumer inflation, which hit record highs of 10.6% last October on a surge in energy and food prices caused by the Russian invasion of Ukraine, is to decelerate to 5.6% this year and 2.5% in 2024.

This would be a greater deceleration that the previously expected 6.1% for 2023 and 2.6% for 2024.

“This forecast crucially hinges on the purely technical assumption that Russias aggression of Ukraine will not escalate but will continue throughout the forecast horizon,” the Commission said.

(Reporting by Jan Strupczewski; editing by Philip Blenkinsop)