EU executive sticks to Feb euro zone growth forecast for 2024, cuts inflation projection

The European Commission stuck on Wednesday to its February euro zone growth forecast for this year but said inflation was likely to decelerate more quickly towards the central bank’s target.

In its regular forecast for the 27 countries of the European Union and the 20 countries that share the euro currency, the Commission confirmed its February forecast that the euro zone economy is to expand 0.8% this year, rather than 1.2% it had expected last November.

This would be the same rate of growth as Japan’s, faster than Britain’s 0.5%, but three times slower than the 2.4% predicted for the United States.

But it warned that uncertainty and downside risks have further increased in recent months because of the evolution of Russia’s protracted war against Ukraine and the conflict in the Middle East.

Euro zone expansion is mainly held back by Europe’s biggest economy Germany, which will hardly grow at all this year, expanding only 0.1% after a 0.3% recession in 2023 and growing 1.0% in 2025. In November, the Commission expected Germany’s Gross Domestic Product would rise 0.8% in 2024 and 1.2% in 2025.

The Commission also sees the second biggest economy France growing only 0.7% this year, rather than 1.2% predicted in November and growing 1.3%, rather than 1.4%, in 2025.

Next year, euro zone growth is likely to accelerate to 1.4%, but that would still be less than the 1.6% forecast in November, and less than the 1.5% forecast in February.

Consumer inflation, which the European Central Bank wants to keep at 2.0% over the medium term, is to slow down to 2.5% this year from 5.4% last year and then to 2.1% in 2025. In February the Commission forecast inflation would decelerate to 2.7% this year and in November it expected an even less impressive 3.2%.

But the speed of disinflation was subject to uncertainty too, the Commission said.

“The decline of inflation may be slower than projected, possibly leading EU central banks to delay rate cuts, until the decline in services inflation firms,” the Commission said.

“Furthermore, some Member States may adopt additional fiscal consolidation measures in their 2025 budgets – not currently factored into this forecast – which could impact economic growth next year,” it said.

The budget consolidation this year is likely to be a bit less ambitious in the euro zone than expected in November and public debt is likely to stay unchanged in 2024 against 2023 at 90.0% of GDP, the Commission said.

The aggregate euro zone budget deficit in 2024 is to fall to 3.0% of GDP — the EU ceiling under its fiscal rules — and shrink further to 2.8% in 2025. In November, the Commission expected the fiscal consolidation to be more ambitious with the aggregated deficit cut to 2.8% already in 2024.
Source: Reuters (Reporting by Jan Strupczewski)