The European Commission (EC) has downgraded the EU’s economic growth estimate for this year to 0.6 percent. This is two-tenths of a point weaker than the growth it had expected at the end of the summer. The Commission said this today in its autumn macroeconomic forecast. In its spring forecast, published in May, the Commission forecast the EU economy to grow by one percent this year. The economy will avoid recession and inflation will fall significantly next year, according to the forecast.
The European economy is slowing down
The Commission attributes the further deterioration in the outlook to several factors, notably the high cost of living, weak external demand and the impact of tight monetary policy by central banks. The EU executive has downgraded its estimate of gross domestic product (GDP) growth for next year to 1.3 percent, down from 1.4 percent in the summer and 1.7 percent in the spring. The commission set its growth estimate for 2025 at 1.7 percent.
The inflation rate, which the commission estimates at 6.5 percent for the whole union this year, will be softer than in the spring forecast. This is two-tenths of a percentage point lower than the commission forecast in May. It expects inflation to ease to 3.5 percent next year and 2.4 percent the year after.
The commission also downgraded the growth outlook for the eurozone economy to 0.6 percent this year, down from 0.8 percent in the summer and 1.1 percent in the spring. The commission lowered its growth estimate for next year to 1.2 percent from the spring estimate of 1.6 percent, and set the 2025 growth estimate at 1.6 percent.
Aggregate budget deficit
The eurozone’s aggregate budget deficit is forecast to fall to 2.8 percent of GDP next year from 3.2 percent this year. The decline will then continue until the deficit reaches 2.7 percent of GDP in 2025, below the 3 percent ceiling required by EU rules. “The main reason for this decline will be the significant easing of energy measures next year and their phasing out in 2025,” the commission said.
However, France, Italy, Slovakia, Malta and Belgium will have budget deficits well above four percent of GDP both next year and in 2025, the forecast said. This is likely to trigger disciplinary action by the European executive against these countries, the commission noted.
For the first time, the forecast also includes EU candidate countries, namely Bosnia and Herzegovina, Ukraine and Moldova. For Ukraine, for example, the commission forecasts GDP growth of 4.8 percent this year, moderating to 3.7 percent next year, but the commission expects the pace to accelerate to 6.1 percent in 2025.