Europe's economy will grow more than previously forecast this year as it avoids a winter recession, with inflation expected to ease and gas prices continue to fall.
The European Commission said this Monday that the 20-nation eurozone's economy is now expected to expand by just under one percent instead of 0.3 percent, as "favourable developments" helped the single-currency area weather the fallout from Russia's invasion of Ukraine.
According to the commission, the eurozone and the wider 27-nation EU are now expected to "narrowly avoid" a technical recession – two straight quarters of economic contraction – this winter.
EU economy commissioner, Paolo Gentiloni, added "These are quite outstanding outturns, proving the remarkable resilience of the EU economy to the headwinds unleashed by Russia's war against Ukraine and in particular the energy crisis."
Inflation is now expected to reach 5.6 percent in the eurozone in 2023 – down from a previous forecast of 6.1 percent – as oil and gas prices have eased after soaring when the conflict broke out a year ago.
After consumer prices jumped to a record high of 10.6 percent in October, they have slowed for three straight months, suggesting that "the peak is now behind us", the commission said.
#Eu economy set to escape recession but headwinds persist ❄️2023 #ECForecast pic.twitter.com/qdKJHjyags
— Paolo Gentiloni (@PaoloGentiloni) February 13, 2023
Results are 'better than expected', but not good
The European Central Bank launched a series of interest rate hikes last year in efforts to control inflation.
European nations, which were heavily reliant on Russian energy before the war, have scrambled to diversify their supply sources as Moscow slashed deliveries.
EU governments rolled out relief measures to cushion consumers and businesses from surging prices, and rushed to fill up storage facilities.
However, a milder winter enabled consumption to fall with wholesale gas prices having dropped below pre-war levels.
The commission also raised its growth forecast for the entire EU bloc to 0.8 percent.
Gentiloni warned that "better than expected doesn't mean good".
War remains the 'main risk'
This year's forecast for both areas is down from 3.5 percent growth in 2022.
"Europeans still face a difficult period ahead, with growth still expected to slow and inflation set to relinquish its grip on purchasing power only gradually," Gentiloni said.
"That's why we must show the same resolve and ambition as we did over the past three years when it comes to tackling with common responses the challenges we face today," he added.
The commission has opened a debate on relaxing the bloc's state aid rules and creating a "sovereignty fund" in the face of high energy prices and competition from subsidies US and Chinese green tech programmes.
The European Commission left the eurozone growth forecast for 2024 unchanged at 1.5 percent, with predicted inflation set at 2.5 percent.
For Gentilioni, "The main risk to these forecasts is based on the geopolitical tensions, the evolution of the war."
