EU economy to escape recession

The European Commission has released its latest forecast for the region’s economy, predicting that it will narrowly avoid a recession this year. The report offers a glimmer of hope in the face of an uncertain landscape that remains dependent on Russia’s actions in its invasion of Ukraine, which is nearing its one-year anniversary. Despite this uncertainty, the European Commission projects that the EU as a whole will see a growth rate of 0.8% in 2023, up from the previous forecast of 0.3%, while the eurozone will expand by 0.9%.

While the report is positive, Paolo Gentiloni, European Commissioner for the economy, has cautioned that the outlook remains policy-dependent, and Europeans will still face a difficult period ahead. Growth is expected to be slow, and inflation is set to relinquish its grip on purchasing power only gradually. A technical recession, defined as two-quarters of economic contraction, is still possible in some EU countries, even if the final number for 2023 ends up being positive.

Of the 27 member states, only Sweden shows a negative number for this year (-0.8%), while the rest present limited but positive growth. Germany and Italy, two countries highly dependent on Russian fossil fuels, are projected to grow at rates of 0.2% and 0.8%, respectively. France will grow by 0.6%, while the Spanish economy will increase by 1.4% across 2023. Ireland is the best-performing economy, with a rate of 4.9%, largely driven by the investment of foreign multinationals.

The European Commission believes that the bloc has turned the corner on record-breaking inflation, and prices will maintain the downward trend that began late last year. This development is linked to a steady decline in Europe’s gas prices resulting from coordinated power savings, mild weather, and diversification from suppliers. The European Commission’s winter forecast builds on a series of projections that in recent weeks have improved the outlook for the bloc and have pushed away the threat of recession.