EC raises Eurozone growth forecast

SGGP May 17, 2023 07:31

On May 16, the European Commission raised its economic growth outlook and inflation forecast for the Eurozone in 2023 to 1.1%, while ruling out the risk of a debt and real estate crisis in the region.

Germans less worried about shopping as inflation cools down

Optimistic signals

The European Commission's (EC) forecast this time is more optimistic than the forecast issued at the end of last year, thereby raising the growth outlook for the Eurozone from 0.9% to 1.1%. The European Union (EU) Economic Commissioner, Mr. Paolo Gentiloni, commented that the economic situation in Europe is more positive than forecasted last fall. Countries in the old continent have avoided recession by the end of 2022 and are forecast to achieve moderate growth this year as well as next year thanks to efforts to strengthen energy security, significant resilience of the labor market and easing of supply constraints.

The EC raised its 2024 growth forecast for the 20-nation region from 1.5% to 1.6%. It also revised its forecast for eurozone inflation to 5.8% in 2023, up from 5.6% in its previous forecast. Consumer prices are expected to rise 2.8% in 2024, above the European Central Bank's 2% target. The EC warned that as inflation remains high, financial conditions will tighten further.

Meanwhile, wholesale prices fell 0.5% year-on-year in April, according to data from the German Federal Statistical Office (Destatis). This is also the first annual decline in wholesale prices since December 2020. According to Destatis, lower overall prices in the wholesale market could be good news for consumers struggling with high living costs. Wholesalers are often the intermediaries between manufacturers and retailers and ultimately consumers. Therefore, the prices they set often affect prices in stores, with increases or decreases reaching customers after only a very short time. With wholesale prices falling, this could reduce the rate of inflation, while consumer prices are likely to increase at a slower pace in the remaining months of the year.

Eliminate the risk

EU Economic Commissioner Paolo Gentiloni has ruled out the risk of Europe facing a debt or real estate crisis, despite the European Central Bank's sharp increase in interest rates. Mr. Paolo Gentiloni said that the decision to raise interest rates would cause difficulties for some countries, but not all 27 EU member states. The reason is that the real estate market in each country has different problems, depending on the level of connection between the mortgage system and inflation. He said that the increase in interest rates would increase the cost of borrowing, but at a limited and completely controllable level.

Sharing the same view, Irish Finance Minister Michael McGrath said that there is no risk of a crisis in the real estate market, at least in this country, in the context of increasing housing demand due to the population explosion.

Earlier, the European Central Bank announced its decision to raise interest rates by 0.25% to 3.25%, as inflation in the Eurozone is slowing down with a stable outlook. It is likely that the European Central Bank will continue to pursue this policy to curb inflation amid rising price and wage pressures.

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