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The European Commission revised down its forecast for EU and eurozone growth for the year as higher interest rates weigh on economic activity, and said inflation is expected to halve from highs of 2023.
In its economic forecast published on Thursday, the Commission said it expects gross domestic product to grow by 0.8% in the eurozone this year and 0.9% in the EU, down from 1.2% and to 1.3% respectively in the autumn forecast.
Growth is expected to resume in 2025, reaching 1.5% in the Eurozone and 1.7% in the EU.
The Commission also revised production downwards for 2023 to 0.5% in both areas, after stagnation in the last quarter.
“The expected recovery for 2024 will be more modest than expected three months ago, but will gradually accelerate on the back of slower price increases, real wage growth and an extraordinarily strong labor market,” said Paolo Gentiloni, responsible for the EU Economy. commissioner.
Inflation expectations were revised lower as energy and other commodity prices fell faster than expected. The European Central Bank raised the deposit rate to a record 4% in September in a bid to tame persistent price pressures.
Eurozone annual inflation is expected to fall by half this year, to 2.7%, from 5.4% in 2023, a faster decline than the 3.2% rate previously forecast for 2024. Eurozone inflation expectations for 2025 remain unchanged and slightly above the target of 2.2%. hundred.
The commission warned that trade disruptions in the Red Sea could keep monthly inflation figures high.
Markets expect the ECB to start cutting interest rates this year, perhaps in April.
But in the European Parliament on Thursday, ECB President Christine Lagarde pushed back against suggestions that rate cuts could be imminent. “We are in a disinflationary process. We are seeing that we do not yet have enough evidence to say that we have the level of confidence needed to achieve our medium-term 2% target. [inflation] objective and that it will be there sustainably,” he said.
“It will take data, it will take more time, because we will decide meeting after meeting. The last thing I want to see is a hasty decision to see inflation rise again and have to take further action.
“We need to have more confidence. And at this point we still don’t have enough to make sure it’s sustainable,” she added.
“We don’t want to run the risk of the situation being reversed, which would be a waste of everything we’ve done and would lead us to take further measures.”
In its latest growth projections, the Commission expects modest output growth in all 27 EU member states in 2024. Eleven EU economies, including Germany, the EU’s largest economy, have experienced technical recessions in 2023.
Businesses are struggling to adapt to the lockdown’s tougher economic environment. As pandemic-era financial support reduced in many countries, the number of bankruptcies rose by 0.6% in the final quarter of last year, according to Eurostat, the EU’s statistics office.
However, the number of business registrations increased by 0.1% compared to the previous three months – the fourth consecutive quarter with a moderately upward trend.
Additional reporting by Aiden Reiter in London