European Commission trims growth forecasts

15th Feb 2024 11:37

(Sharecast News) - Brussels downgraded growth forecasts for the Eurozone on Thursday, as higher interest rates continue to weigh heavily.

Publishing its winter economic forecast, the European Commission said the European Union's economy had started 2024 on a weaker-than-expected footing.

It therefore trimmed growth forecasts for the Eurozone to 0.5% in 2023 and 0.8% in 2024. In its Autumn forecast, the EC had pencilled in growth of 0.6% in 2023 and 1.2% in the current year.

The 2023 forecast for the wider bloc was trimmed to 0.5% from 0.6% last year, and to 0.9% from 1.3% in 2024.

However, inflation was forecast to decline faster than previously expected, thanks largely to easing energy prices.

The harmonised index of consumer prices is now forecast to fall from 6.3% in 2023 to 3% in 2024 and 2.5% in 2025.

In the Eurozone, it is forecast to fall from 5.4% last year to 2.7% and then 2.2% in 2025.

All EU countries use the same methodology to calculate HICP.

The EC said: "This forecast is surrounded by uncertainty, amid protracted geopolitical tensions and the risk of a further broadening of the conflict in the Middle East.

"The increase in shipping costs in the wake of the Red Sea disruptions is expected to have only a marginal impact on inflation. Further disruptions could, however, result in renew supply bottlenecks that could choke production and push up prices."

In common with most central banks, the European Central Bank increased interest rates to tackle surging inflation. It last raised the deposit rate to a record 4% in September.

With inflation now off highs, markets expect the ECB to start trimming rates this year to bolster growth.

However, earlier on Thursday ECB president Christine Lagarde said there was not yet enough evidence inflation would sustainably reach its 2% target.

The forecast coincided with the publication of British GDP data, which showed the UK had tipped into technical recession at the end of 2023. Overall, GDP grew by 0.1% in 2023, the Office for National Statistics said.