Europe's economy has left stagnation behind but is headed for only modest growth in coming months as consumers regain some of the purchasing power they lost to inflation, the European Union's executive commission said Friday.
The bloc's economy remains at risk from protectionist moves by major trading partners, the report said. U.S. president-elect Donald Trump has often talked about imposing new tariffs, or import taxes, on foreign goods.
“A possible protectionist turn in U.S. trade policy would be extremely harmful for both economies," said European Economic Commissioner Paolo Gentiloni. The EU ”will engage with the new administration with a great spirit of cooperation” but also a willingness to defend open trade, he added.
The 20 countries that use the euro are forecast to see growth 0.8% this year and 1.3% next year, the commission report said.
“After the stagnation in ’23, the European economy is growing again and is set to accelerate over the next two years, however growth remains modest and exposed to important downside risks,” said Gentiloni.
Growth started to recover earlier this year as new wage agreements began partially restoring household finances. The commission said that “the restraint to consumption appears to be loosening."
It added: "As the purchasing power of wages gradually recovers and interest rates decline, consumption is set to expand further.”
Inflation is forecast to come in at 2.1% next year, just above the European Central Bank's target of 2% and a substantial relief from the peak of 10.6% recorded in October 2022.
Germany, the eurozone's biggest economy is set for a second consecutive year of shrinking output this year at minus 0.1% percent, with a moderate rebound next year at 0.7%.
