Europe avoids recession: growth better than expected and inflation is below 6 percent

BRUSSELS. More growth and less inflation, and a recession which, albeit “narrowly”, was avoided in any case. The economic prospects for the Eurozone and its Member States are now rosier, after months of forecasting the worst which, however, warns the European Commission, still lurks around the corner. Because it is true “since autumn the economy has seen a series of positive developments”, first of all the reduction in the price of gas, but it is also true that the uncertainties surrounding the economy “remain high”.

Meanwhile, however, in the winter economic forecasts, the EU Commission is revising growth upwards. Gross domestic product of the Eurozone at 0.9% for this year, more than half a point of GDP more than the estimates produced in November (0.3%). Thanks also to Germany’s ability to resist, whose figure is no longer the feared -0.6% but 0.2%. An extra half point of growth is now also attributed to the economy of all 27 members of the twelve-star club. EU GDP will no longer see a weak 0.3%, but 0.8% at the end of this year. Still zero growth, but closer to integer values.

Despite the energy shock and resulting record inflation, the slowdown in the third quarter turned out to be “milder” than previously estimated and the EU economy experienced “large stagnation instead of 0” contraction in the fourth quarter. .5% expected in the autumn», the opinion of Brussels. In summary, “The EU economy is therefore destined to narrowly escape the recession outlined in the autumn”.

As for inflation, the EU executive expects that in 2023 it will be, at the general level of Euroland, at 5.6% and no longer at 6.1%. The situation is therefore improving and should continue in 2024 as well. For the year in question, even more growth is expected (that of the Eurozone at 1.5%, stable) and even less inflation (at 2.6%, almost halved compared to the values ​​foreseen for the current year).

Paolo Gentiloni looks happy. “The EU economy exceeded expectations last year, with resilient growth despite the shock waves of the Russian war of aggression,” says the economy commissioner, who looks at the new data with renewed optimism. We entered 2023 on firmer footings than expected: the risks of recession and gas shortages have vanished and unemployment remains at historic lows. That said, the worst is not over. “Europeans still face a difficult period”, as growth “is still expected to slow down in the wake of strong headwinds and inflation will only gradually relinquish its grip on purchasing power in the coming quarters”.

Italy, in 2023 half a point of GDP more than in November

The general improvement is also being felt in Italy, where estimates have been revised upwards by half a percentage point, to 0.8% (compared to 0.3% expected in November). The country has held up, and will now continue at a slow pace. “This year, economic activity is expected to recover only gradually,” reads the European Commission’s analysis. This is explained by the increase in consumer prices, bills and receipts at the cash desk. Household consumption “continues to be held back by the loss of purchasing power”, which however can also be explained by the choices made by the government in recent months. Among the causes of the loss of purchasing power, “the expiry of the tax breaks on motor fuels (at the end of 2022) and of other measures to support household income (at the end of March 2023)” is also mentioned. If all goes well, consumer spending should start growing again in the second half of the year, in parallel with the acceleration of investments, also thanks to public investments.

In any case, Gentiloni invites us to make the necessary reforms. He recalls that if the recession has been avoided it is also “thanks to a unified and global political response”, and therefore “we must show the same determination and ambition in tackling the challenges that we are facing today”. A general message, not addressed to Italy alone. However, like everyone else, he is asked to close ranks.