The European Commission has revised its growth projections for the eurozone in 2023 and 2024. The main factor behind this adjustment is the underwhelming performance of the German economy.
Projections now indicate a contraction of 0.4 percent for Germany in 2023, a stark shift from the initial forecast of 0.2 percent growth. This downturn is primarily attributed to a recession looming over Germany's extensive industrial sector, coupled with lackluster export figures, both of which bear significant ramifications for the overall economy.
The commission's report highlights a notable weakness in manufacturing, emphasizing that Germany has been disproportionately affected by the energy price shocks stemming from the conflict in Ukraine.
This revision aligns with earlier forecasts from the International Monetary Fund, which had already anticipated Germany as the sole major advanced economy poised for contraction in 2023.
While growth is expected to persist in both the eurozone and the broader European Union, it is now anticipated to be more subdued than previously anticipated earlier this year.
Initially, in May, the commission had estimated a growth rate of 1.1 percent for the eurozone in 2023. However, this figure has been revised down to 0.8 percent as of the latest update.
EU Economy Commissioner Paolo Gentiloni commented on the challenges faced, stating, “The multiple headwinds facing our economies this year have led to a weaker growth momentum than we projected in the spring.” He specifically pointed to the "economic disruption" wrought by the conflict in Ukraine.
The growth projection for the entire 27-nation EU has also been scaled back for 2023, now standing at 0.8 percent, down from the earlier estimate of around one percent.
The commission predicts that the 20 countries comprising the single currency area will experience a growth rate of 1.3 percent in 2024, a dip from the prior projection of 1.6 percent.
Looking ahead, the EU's growth outlook for the following year is marginally brighter, with a forecasted growth of 1.4 percent.
In addition to growth figures, the eurozone's inflation forecast has been adjusted downward. It is now projected to remain slightly above target at 5.6 percent in 2023, a minor decrease from the previous estimate of 5.8 percent.
Consumer prices in the eurozone are expected to revert to 2.9 percent in 2024, a modest increase from the 2.8 percent prediction made in May for the subsequent year.
