BRUSSELS, September 11 (Reuters) – The euro zone’s economy will grow below expectations this year and next, the European Commission predicted on Monday, due to high inflation hampering consumer demand and the country’s entry into the economy. . Germany, the largest economy in the bloc.
In its provisional forecasts for gross domestic product and inflation in the five largest economies of the euro zone, the Commission said that GDP (gross domestic product) in the single currency zone will grow by 0.8% in 2023 and 1.3% in 2024, compared to forecasts of 1.1% and 1.6%, respectively, announced in May.
“The weakness of domestic demand, especially consumption, shows that the high and still rising consumer prices for most goods and services will take a higher toll than expected in the spring forecasts ,” the agency said.
“And this is despite declining energy prices and the extraordinary strength of the labor market, which has seen historically low unemployment rates, continued employment expansion and rising wages,” he added.
The Commission forecasts consumer inflation in the euro zone of 5.6% in 2023 and 2.9% in 2024, both above the European Central Bank’s target of 2.0%. Inflation this year is lower than the 5.8% forecast in May, but higher than in 2024, because the forecast in May is 2.8%.
The ECB has been rapidly raising rates since mid-2022 to prevent record price growth, making borrowing more expensive for the economy, a factor affecting the growth forecast.
“The sharp slowdown in the provision of bank credit to the economy shows that the tightening of monetary policy has entered the economy,” said the Commission.
“Survey indicators now point to a slowdown in economic activity in the summer and coming months, with continued weakness in industry and slowing momentum in services, despite a strong period of tourist in many respects.” in Europe,” he declared.
Germany, Europe’s largest economy, will contract by 0.4% this year, according to Commission forecasts, down from the 0.2% growth forecast in May. Next year, German growth will also slow, to 1.1% instead of the 1.4% previously forecast.
Italy and the Netherlands will also grow more slowly this year, according to the Commission, which forecasts GDP expansion of 0.9% and 0.5% respectively, from 1.2% and 1.8% respectively.
However, France and Spain will grow more than expected in 2023, according to the Commission, which predicts growth of 1.0% and 2.2%, respectively, instead of the 0.7% and 1.9% previously forecast.