Inflation past its peak, no recession – DW – 02/13/2023

Inflation past its peak, no recession – DW – 02/13/2023

The EU executive released revised economic forecasts on Monday, saying the bloc will narrowly avoid a technical recession and has already passed its inflation peak as natural gas prices continue to fall compared to historic levels in mid to late 2022.

But the European Commission also warned that consumers will continue to feel the pinch of reduced purchasing power as inflation remains above 5%.

“The EU economy beat expectations last year, with resilient growth despite the shock waves the war of russian aggression“, said the Commissioner for the Economy Paolo Gentiloni. “And we entered 2023 on stronger footing than expected: the risks of recession and gas shortages have faded and unemployment remains at an all-time high.

What are the Commission’s growth forecasts?

Growth for 2023 is expected to reach 0.8% for the 20 countries using the euro single currencyand 0.9% for the entire 27-member bloc, the Commission said. This compares to the 0.3% growth forecast in its previous quarterly report.

The Commission also predicted that the bloc would avoid a contraction in the current January-March quarter, and thus narrowly avoid a technical recession. This follows growth of just 0.1% in the previous quarter.

Many economists classify a technical recession as two consecutive quarters of negative growth. But under the EU measurement system, the previously forecast first-quarter performance coupled with the last quarter of 2022 would have qualified as a technical recession.

Longer-term growth forecasts for 2024 remained unchanged, at 1.6% for the EU and 1.5% for the euro zone.

“Europeans still face a difficult period. Growth is expected to slow further under strong headwinds and inflation will only gradually loosen its grip on purchasing power over the coming quarters,” Gentiloni said. .

“Thanks to a unified and comprehensive political response, the EU has weathered the storms that have hit our economies and societies since 2020. We must show the same determination and ambition to meet the challenges we face today. ‘today.”

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And what about inflation?

For the whole of 2023, inflation was forecast at 5.6% in the euro zone and 6.3% in the whole of the EU.

Inflation peaked last October to 10.6% in the euro zone but has since fallen to 8.5% in January. The EU believes that lower gas prices, partly because the EU secures alternative sources of supply and compensates for the stoppage of Russian importsexplain this — but it warns that price pressures on other goods are less likely to abate.

“The decline is mainly due to lower energy inflation, while core inflation has yet to peak,” the Commission said in a press release on Monday.

The European Central Bank (ECB) raises interest rates in order to slow down inflation. The aim is to discourage some borrowing and spending by making credit more expensive, but this can also have a negative impact on economic output.

Currently, the Commission expects inflation to be much closer to the ECB’s target level of 2%, at around 2.8% for the bloc as a whole, in 2024.

The report also points to a record unemployment rate in the EU, at 6.1% at the end of 2022, as a bright spot helping to counter the economic impacts following the COVID pandemic and amid the invasion of Ukraine by Russia.

“The European economy is showing resilience in the face of the current challenges. We were able to narrowly avoid a recession. We are somewhat more optimistic about the growth outlook and the expected decline in inflation this year,” said the Trade Commissioner Valdis Dombrovskis.

“But we still face multiple challenges, so now is not the time to be complacent, not least because Russia’s ongoing war against Ukraine still brings uncertainty.”

The Commission also made direct reference to this uncertainty in its press release, noting that its current forecast “is essentially based on the purely technical assumption that Russia’s aggression against Ukraine will not escalate but will continue. throughout the forecast horizon.

msh/fb (AP, dpa, Reuters)