Brussels (EFE).- The European Commission (EC) raised this Monday by two tenths its growth forecast for the gross domestic product (GDP) of the euro area for 2023, up to 1.1%, and by one tenth for 2024, up to 1.6%, due to the positive effect of the drop in energy prices.
The new macroeconomic forecasts presented by the Community Executive indicate, however, that inflation will fall at a slower rate than expected last February, up to 5.8% this year and 2.8% the next, levels two and three tenths higher, respectively, than what was estimated in their latest projections.
The evolution will be similar in the whole of the European Union, for which Brussels improves its GDP expansion forecast by two tenths for 2023, to 1.0%, and by one tenth for 2024, to 1.7%. while its outlook for the evolution of inflation worsens by three tenths for both years, which stands at 6.7% this year and 3.1% next year.
The influence of energy prices
“Lower energy prices, fewer supply constraints and a strong labor market supported moderate growth in the first quarter of 2023, allaying recession fears. This better-than-expected start to the year raises the growth forecast for the economy,” the Commission explained.
The main pillar of the strong start to the year, with growth of 0.1% in the euro area and 0.3% in the EU, according to preliminary data, has been the decline in energy prices motivated by the diversification of sources of supply and the reduction of consumption to face the impact of the war in Ukraine, which Brussels expects to continue in 2023 and 2024.
Among the large economies in the euro, Spain will be the one that will grow the most this year, 1.9% (five tenths more than previously expected), followed by the Netherlands (1.8%), Italy (1.2%) and France (0.7%). All of them have seen their outlook revised upwards, with the exception of Germany, whose GDP will expand by only 0.2% in 2023, the same level projected in February.
Core inflation continues to rise
As regards inflation, Brussels stresses that, although lower energy prices have led to a drop in the rate since last October, core inflation (which excludes the effect of energy and fresh food) continued to rise to a maximum record of 7.6% in March and is expected to remain this year and next year above the nominal rate, at 6.1% and 3.2%, respectively.
It also warns that persistently high underlying inflation could lead to further restriction of household purchasing power and an even more pronounced tightening of financing conditions, which could also be more pronounced if turbulence in the financial sector is repeated.
On the other hand, the Commission foresees that the reduction in energy prices will allow governments to gradually eliminate support measures, which will drive reductions in the public deficit in the euro area to 3.2% and 2.4% of the GDP in 2023 and 2024 respectively, and up to 3.1% and 2.4% in the EU, which improves the projections made in autumn.
However, 14 Member States – including Spain – are expected to maintain their deficit ratios above 3% of their GDP in 2023 “since their fiscal policy continues to be expansive”, which would imply that they would be exposed to Brussels file them for excess deficits when it reapplies its fiscal discipline rules next year.
Brussels also improves its forecasts regarding debt reduction and calculates that economic growth, inflation and the rise in interest rates will reduce debt “constantly” to stand at 90.8% in the euro area and the 89.9% in 2023 and 2024 respectively, and 83.4% and 82.6% in the EU.